On to the fieldnotes...

Happiness in Fundraising

Truth about happiness:

Happiness is the difference between Reality and Expectations: △(Reality, Expectations)

This is something that has been on my mind recently as I navigate not only fundraising in this market for founders but also my own life. While there's less tactical advice and zero templates, tools, or lists to give away in this essay, it is no less of an essential lesson for founders.

Happiness = △(Reality, Expectations)

The more reality exceeds your expectations, the happier you will be. The moment expectations exceed reality, happiness turns into disappointment.

Easy example: if I tell you your year-end bonus is going to be $2 and I give you $5, you’re going to be very happy. If I had told you your bonus would be $10 and gave you $5, your utility would be the same but your happiness would be quite quite different.

This is a struggle for all of us as we battle the achievement treadmill where wins push our reality well beyond our expectations into soaring realms of happiness!!!

… until our minds adapt to that new reality and generate greater expectations wiping out the △(Reality, Expectations) happiness we had recently captured.

A threat to happiness in fundraising

In fundraising there is another element that threatens my founders’ happiness: the time lag in market data.

Founders base their fundraising expectations on data they hear about past raises. Because there is no real-time stream of valuation data, any info on round size or valuation that a CEO hears from the grapevine will be many months out of date. Basing any type of projection on stale data is dangerous, but especially so when it comes to fundraising.

At this point, some of you will want to try to catch me in a mistake. Those readers will be quick to say “What about AngelList and Carta data?! They publish data right after it hits their systems!”

Ah! Not so fast, my dear know-it-all reader. Carta and AngelList data may be more fresh than what you heard from your buddy’s buddy about the friend who closed that monster round… but negotiations for rounds happen well in advance of both announcing a closing to the market and entering data into a cap table system. Not to mention any editorial lag before publishing.

No matter where founders receive their intel on fundraising, there will be a lag. This lag can do wonders for founder happiness in a rising market. But in a sliding market like we’ve been over the past few quarters, it is a satisfaction killer.

The 2021-2022 fundraising happiness rollercoaster

Between 2021 and late 2022 I spent time with many founders who closed rounds of funding. Some of those founders closed rounds whose valuations were not in the same range as the wild valuation stories swirling in the market. While these founders were still relieved as everyone is after finishing a fundraise, they couldn’t help but feel disappointed at their comparatively feeble valuations.

I knew at the time the market was irrational, and those valuations wouldn’t last. I knew that reality would be harder for these founders to accept, so I was quick to reach out and help manage their levels of happiness and mental health.

In those convos, I told the story of my very first investment in 2013 for a software company that was doing a million dollars in revenue a year and closed with an $8M valuation. This was a similar if not lower valuation than what these founders were receiving with zero or minimal revenue!

My message? Gratitude and perspective. I wanted them to remember they just had investors say their company was worth many millions of dollars…something they would not have come close to doing just a handful of years prior. They needed to embrace this an amazing accomplishment and a starting point for the next chapter of their company.

Gratitude pays off

How did that work out for them btw? Fast forward a year and a half later, the same companies needed to raise again, but this time in a very different market.

Their old valuations, which once felt like a scarlet letter of failure, were now a stable platform from which to launch a fundraise. Unlike other founders who had insane valuations from 2021, they were better positioned to easily do step ups in valuation and show continuous momentum.

Happiness is fragile

As you learn about ways to protect your happiness, realize that happiness is fragile. The human mind is quick to adapt to new realities and reset expectations.

How do I know?

The same rollercoaster of happiness and satisfaction I’ve been describing did not end there.

Even with a more reasonable base to launch a fundraise, raising capital in Q4 of 2022 was still brutal. One founder in particular went through the ringer to try to get a round done. It was existential stress for her. She told me multiple times, “I’d be happy if we could just close capital on a flat round.” At this point, she was not happy. While expectations were low… reality was even lower.

And yet, the happiness she felt after she got her first term sheet quickly faded once her own expectations reset. “Should she push for more?” she began to wonder. She had accomplished so much since her last round, after all…

The logic she used to justify why she would be happy with a flat round flew out the door the moment a deal was on the table. All she felt was dissatisfaction.

I don’t want the takeaway here to be “Jason says not to negotiate” or “Jason is against continuous improvement”. No, of course not. People who really know me would laugh at that statement.

Reasonable negotiations are always worthwhile, but reason requires awareness of irrational expectations as well as investor psychology (especially in challenging markets). Continuous improvement is also amazing, but let it be the type rooted in proactive goals rather than reflexive dissatisfaction.

Takeaways for happiness

My one hope for you after reading this essay is if you see yourself quickly resetting expectations in fundraising or life, remind yourself of the logic you used not so long ago to set different expectations.

Remember that in many situations in startups, fundraising and life, holding on to your sense of satisfaction, contentment and happiness and not being swayed by the changing tides is important.

I want to see you all close deals whenever possible and be excited to push forward in the current environment. Stay happy, stay content, and be chased.

Smart Twitter Takes

People love a good Elon thread… these can be helpful in fundraising

The CEO is the fundraiser and the CEO needs to be in charge. Full stop.

P.S. Remarkable how far we've come 😂