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- Should you raise before or after launch? + Fundraising Fieldnotes 10.4.22
Should you raise before or after launch? + Fundraising Fieldnotes 10.4.22
Relying on the Dream, Data, or something in between
Should you raise before or after launch?
Relying on the Dream, Data, or something in between
A common startup dilemma is “Should I raise before or after I launch?”
Here’s the scenario:
Founder follows good advice and works on validating a market opportunity while also building an MVP. Along the way, she builds her network meeting investors and others in the ecosystem intrigued by her work.
4 months of bootstrapping has been hard but with another 2 months, she’ll be able to release her product!
The plan has always been to raise money and with her efforts to network, there actually seems to be a few investors who would be interested. Should she start fundraising now before she launches her product or wait a few months until her product is in the wild and she has even more data to share?
What should she do? Raise before or after launch?
The standard VC advisor will respond with some variation of “well, you can either raise on the dream or raise on data.” Next to the gentle encouragement to raise pre-launch since “you can only raise on the dream once,” this advice has the typical, non-committal tone that accompanies a lot of VC advice. This is for good reason. Because as with so many scenarios…
… it depends.
Let’s jump into why.
The Dream
The Dream refers to how you sell the opportunity. In a pre-launch pitch, a founder can point to all the amazing things that will happen post-launch and beyond. It is this amazing future that she and the investor can dream about together. The only proof they need to offer (and can offer) is the playbook they intend to run, the prototype, and their passion. That combined with a good process that builds pressure to commit (i.e. if you don’t act now, the startup will take off after launch and you’ll lose your chance to get in at such a low valuation) can drive a Dream-based fundraise to close.
The Data
After launch, all those promises you made before should be answered by the data.
Before: “Customers have been looking for a solution!” After: “So customers have been demanding this product? Well what’s your CAC, Sales Cycle, weekly growth?”
Before: “Our product is best in class” After: “What’s engagement look like and 15, 30 day retention?”
In your post-launch pitch, you better have a great story that fits with the available data. You can’t hide behind your charisma and future dreams anymore!
… or can you?
It all depends… the space everywhere all at once and in between
First off… what a good movie huh?
Anyway, this is the kind of “it depends” portion of the story. The answer is not as black and white as pre-launch = dream, post-launch = data. There are tangible components to a pre-launch fundraise and dream-like stories that should push a post-launch raise. Everything goes everywhere (all at once)… it’s not so black and white.
Pre-Launch Nuance
In many cases, fundraising pre-launch is better. It’s true there is an advantage of being able to sell a dream instead of needing to provide real results. Assuming your launch will go great (big assumption), you might sacrifice some valuation / dilution by raising earlier but doing so derisks the next 18 months of the business (in other words..derisks the possibility of launch not going so great).
So raising on the dream is great, but not every business can raise on a dream! In the example that I led with, I mentioned the founder spent time networking and building heat around her company. There needs to be intrigue around you and the company and some momentum to get a deal done. Not every dream gets money just for being a dream.
Some common elements of a pre-launch pitch:
Evidence of market validation
Team excellence & team building
Rapid product iterations
Wild / differentiated vision
Overall excitement + reputation
Post-Launch Nuance
And post-launch? If you launch and don’t have hockey stick growth, are you DOA?
[Note: DOA is not Decentralized Organization that is Autonomous 😂…it’s “dead on arrival”]
No. Most companies don’t hockey stick right after launch. With good consistent growth though, your numbers will paint a believable picture of a future opportunity.
But a “believable picture” isn’t the exciting opportunity that venture capitalists invest in. So how does anyone raise post-launch? That’s where the story comes in.
Taking a plain vanilla set of consistent but boring data and sprinkling an exciting dash of “but this is all leading us to a new inflection point!” gives you that awesome ice cream sundae of an opportunity that VCs will get excited about.
Even a less than spectacular launch with limited data can be dressed up by a story. “We opened the product up to limited release to get customer insights… and learned so much! Here’s what we do next!”
Some common elements of a post-launch pitch:
Exciting product launch
Rapid Iteration with customer feedback
Customer testimonials
Growth data
Engagement data
Ways to accelerate with capital
Obvious opportunity to grow with capital
So when should you raise?
The answer is you need to identify how much excitement there is for your deal and how compelling your story is relative to how much runway you have left to improve the story. Your decision should always be about what is right for your business and situation. Don’t let sound bite advice dictate your strategy.
Smart Twitter Takes
3000 first financings in the US per year. Wow. If you don’t think you’re in the top 3000 of startups in the US, then why are you even trying? You can do this.…
I sometimes wonder if people outside the tech ecosystem realise just how many startups there are.
— Benedict Evans (@benedictevans)
12:57 PM • Jul 28, 2022
Web3 fundraising is such an interesting variation of the traditional game. Take a skim to educate yourself…
Token lockups are a fundamental part of venture funding in crypto.
We took a look at token vesting trends over the last few years in an attempt to find an optimal vesting schedule for founders.
Read on below 👇
— Lauren Stephanian (@lstephanian)
3:01 PM • Jul 28, 2022
P.S. I’m so confused why this is so hard to find when it is the ONLY reason i need to open FB nowadays…
Upcoming Events
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Wonder VC and House of Ventures event on Wednesday 10/5 in Venice, CA
Sounds like a great event bringing talent in the Venice area together at a great lil bar on Abbot Kinney (The Brig).
Event List is still open at time of writing
Register here: https://lu.ma/combinations
Founder dinner in LA being pulled together in 2 wks
Pulled together by consumer founder who's raised $1MM, a Xoogler founder, & other venture-backed folks
Personal fan of the organizer's product. I know she'll curate a great experience
Room for 3 more founders, 1-2 VCs, & maybe a sponsor?
Female Founder + Investor dinner in São Paulo THIS Friday 10/7
A bit of a celebration for one founder who was published in Fast Company
All badass women saving space for 1-2 more female founders + investors
GREAT opportunity for a sponsor to cover the dinner and join
Also in São Paulo - an event for Brazil VC Week on Thursday 10/6
Some great investors joining from Kaszek Ventures, Valor Capital, and Mantis VC
Register here: https://lu.ma/Brazil_VC_Week_TC
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