Fundraising is time-consuming, distracting, and especially for first-time founders, difficult to navigate. Earlier this month, we hosted a fundraising workshop as part of JP Morgan’s Founder Fundamentals series where our Managing Director, T.A. McCann, shared his thoughts on navigating fundraising alongside Marius Ciocirlan (MarkOS co-founder and CEO, recently raised $4M and former Techstars Seattle MD) and Catherine Williams (Principal at Dundee VC).

For the founders out there, there are 5 key learnings from that workshop that we hope are helpful for you:

1. This is a sales process, with different phases - know which one you're in and how to drive it
2. Expand your network creatively, finding novel ways to engage investors
3. Use momentum and competition to drive conversion to a term sheet
4. Construct your round carefully, keeping in mind signaling risk
5. Carve out room for yourself, no matter how hard that can be

1. This is a sales process

Fundraising is comparable to selling. Rather than an AI model or SaaS tool, your "product" (for the VCs) is the opportunity to lead the round. All (or almost all) of the best practices founders use to get customers can apply to getting the best investors.

First, think about timing. There are two good times of the year to raise money: Spring (January through April) and Fall (September through November). Holidays tend to be low periods as investors are distracted with winter or summer breaks. The time spent in active fundraising can be highly variable, from a few weeks to a few months. But that is just the last stage of the funnel - there is so much work that needs to be done before to identify investors, qualify them, and nurture them. To that end, we think about three stages of fundraising: passive, opportunistic, and active.

Passive fundraising is the start of the process (when you have at least 12 months of runway). This is where you can informally build connections with prospective investors - using coffee chats to get advice and share the progress you are making. At this stage, founders should be meeting 1-2 new lead investors each month. Start focusing your time on the "best" ones and use this time to gather information and build relationships with them. Once you have enough momentum and you begin preparing for fundraising, you are now into the opportunistic stage (usually about 9-12 months before you run out of money) - focus on getting your ducks in a row for the official process. At this stage, it’s worth remaining open to favorable term sheets (you should know what good terms mean to you) that require minimal effort from you but make sure not to get distracted from the full fundraising process. Lastly, you enter the active stage (<6 months of runway left). This is when you need money to come in - setting up official pitch meetings, data rooms, etc. Make sure to keep yourself organized as this stage can be extremely overwhelming. A lightweight CRM/tracker (could be a simple Google Sheet) and weekly progress check-ins are great mechanisms to use. All of the best practices for selling to customers apply here - work your pipeline and drive conversations to either a “Yes, I’m in!” or “Not interested” to avoid wasting time on prospects not likely to convert.

Spending time in upfront passive fundraising can be a very effective way to build relationships and confidence with potential investors and shorten the time in the active fundraise. So when do you start passive fundraising? Months before! If you’re targeting fundraising in Spring, begin the passive work the prior Fall or earlier. If you want to fundraise in the Fall, start the passive work in January.

2. Expand your network creatively

Now that we’ve gone over the process, let’s start at the beginning. Passive fundraising requires finding ways to get in front of investors. While you could cold email investors, unsurprisingly, you are much more likely to get a response from a warm introduction. It’s time to get creative with your network - here are a few ideas from Marius and Catherine to get you started.

When Marius was trying to raise for ShareGrid, he realized that founders are much more likely to respond to cold emails than investors. Founders know how hard fundraising is and often want to help others who follow in their footsteps. Marius researched marketplace companies (like ShareGrid) that had raised in the last 6 months (non-competitive) and emailed all of their founders. Many responded - he used those conversations to get feedback on his pitch and his approach to fundraising. On top of that, there were multiple who believed in his company and introduced him to their investors. An extremely unique way to get in front of your target VCs!

Catherine shared another way to build your network - use your meetings with investors, even those who pass on your company, to get introductions to other leaders you are targeting. Always make your ask as specific as possible so that it requires the least amount of cognitive effort to execute on: “I’m looking for experts or investors focused on X, are there 3 people that you could introduce me to who would fit this profile?” or “I saw you were connected to X, who I think would be a great fit for my round. Are you open to introducing me?” Before you make these asks, make sure you know "why" the investor is passing. They are much more likely to make connections if they are passing because of "them" (fund size, category) vs. your company.

Another strategy is to work your angel network group. Ask your angels to get active and make intros to firms who have participated alongside their investments in the past. They can be a great source of VC leads and also will showcase their ability to "add value" to your forthcoming round.

One final suggestion is to spend time researching investors who have been successful in your category (use something like Pitchbook or Crunchbase). Even if you are not able to get a warm introduction, a cold reachout is much more likely to be effective if you are able to say "Hey I did my research and it looks like you did well on X company, I am doing something similar but with X, Y, or Z modern approach and I'd love to show you what we're up to..."

Do not get demotivated if investors are not in your network. Most founders have gone through the exact same challenge. Tap into the learnings of those before you to get in front of the investors you care about.

3. Use momentum and competition to drive conversion

As you begin to move into the active stage of fundraising, stay laser-focused on getting a committed lead investor. When you meet investors, make sure to leave the first meeting with a good understanding of how they want to be involved - usually determined from their average check size & the round size or just by asking them! T.A. and Marius shared that most investors are not interested or ready to lead, whether due to their check size, level of interest/commitment, or even some strategic reason why they don't lead. Founders often spend a significant amount of time figuring out how to convince these investors to become leads. But that is usually a waste of time. If an investor is not committing, there is not much more information you can share to get them to commit.

The most powerful momentum to drive a fundraise is competition. Early-stage VCs are motivated by FOMO - interest from 1 - 2 reputable investors will get other VCs excited to participate and even vie for the lead. Focus on investors who are experienced and interested in being your lead and convert them. Once you get your lead investor committed to your round, followers are likely fall into place.

Your product is scarce (you usually only have one lead investor) and treating it that way will create competition and ensure that prospective investors also see its value.

4. Construct your round carefully, keeping in mind signaling risk

Once you start getting interest, the next step is to think through how you want to construct your round.

One aspect of your round composition is lead vs. followers vs. angels. Leads will generally comprise ~50% of your entire round. After locking in the lead (who could also set the terms), non-lead investors (followers) can take up anywhere from 25 - 50% of the round. Individuals/angels who are interested in your company will close out the remainder. Your product is to sell the lead - so start from closing the lead and work your way down to angels (see more from T.A. here: Creating a perfect seed round with Leads, Follows and Random investors).

Another aspect of your round is who your investors are. You can think of fundraising as an extension of recruiting. Investors are going to be with you for years to come so think about them as part of your team. Who do you want to be on your team? T.A. shared a framework of the roles a top investor can (and ideally should know how to) play for you. Good investors know when to help you and how to do it, whether that’s to be a "supportive spouse" (you’re doing great!), "professor" (here are some ways I would approach this kind of decision, here are some of my connections or experiences you can draw from), and a "decider" (I think you should do X). Finding a great investor will help accelerate your progress and make your journey as a founder that much more enjoyable.

Lastly, as you are forming your current round, it is worth considering how these investors may impact your future fundraising efforts. Ideally, these investors will follow-on in future rounds as long as they can - especially if they are large, well reputed, multi-stage VCs that can pull other investors in. However, there are times when a VC chooses not to follow-on, which can be a risky signal as you try to attract new investors ("signaling risk"). While it may seem as simple as making sure your company performs well enough to keep your investors on board, we learned from Catherine that some VCs, like Dundee, can have specific criteria that preclude most follow-ons. When you are evaluating these larger VCs, make sure you are aware of their follow-on criteria and trade-off the benefits now (reputation, connections) with the risk that may come in the next round. Marius shared that he went through this analysis himself when it came to his fundraise for MarkOS. He ultimately moved forward because their reputation was going to provide an incredible boost to his company now, despite the future risk he might face.

5. Carve out room for yourself

Hearing “No” multiple times and receiving tough feedback every day or week would be hard for anyone - let alone founders who are working long hours as they try to run every other part of their business. In addition to the mission of their company and the change they want to affect, most founders like certain types of work "inside" the business (like coding, designing, selling, or recruiting). During a tough time like fundraising, be intentional about spending time on the work you enjoy - your happy place. Carve out a day each week where you step back from fundraising and instead completely focus on what you love about building your business. You can get back to fundraising the next day after you’ve recharged.

We also suggest you pick 1-2 programmatic "social/family" things that bring you energy outside of your work. This could be your weekly basketball game, family dinner on Sunday night or coaching your kids’ soccer team. Try to attend these events, look forward to this focused time, and don't talk about fundraising! These small interludes are likely to bring you energy too.

We know fundraising is hard. Our goal is to make fundraising easier and faster for our founders so they can go back to what they love - growing their business.

Have any learnings from your fundraising process? We’d love to hear them! Share them with us at hello@psl.com

About the leaders

T.A. McCann is a Managing Director at Pioneer Square Labs. He is a serial entrepreneur having founded & led Senosis (acquired by Google), Gist (acquired by Blackberry) and Rival IQ (acquired by Netbase). He also has built multiple companies as an EIR at Polaris Venture Partners, Vulcan Capital (Vulcan Labs, Providence Health Services). T.A. is an active angel investor and an adjunct professor at the University of Washington Foster School of Business.

Marius Ciocirlan is the CEO and co-founder of MarkOS, an AI start-up focused on monitoring a company’s brand assets to ensure real time alignment with brand positioning. He is a multi-time founder - previously, he was the CEO and co-founder of ShareGrid (a marketplace to rent/sell film and photography equipment), which was acquired by Backstage. Marius has also led Techstars in Seattle as the Managing Director, where he invested in 36 companies (largely B2B AI startups) and guided many more through the accelerator program.

Catherine Williams is a Principal at Dundee Venture Capital, where she is focused on seed investments in e-commerce, fintech, & supply chain. She previously led finance & strategy at an early-stage cybersecurity startup (Asignio) and prior to that, worked in growth equity at Kayne Anderson Capital.

A big thank you to J.P. Morgan and Lindsay Randall for sponsoring this event.

About Us

Pioneer Square Labs (PSL) is a Seattle-based startup studio and venture capital fund. We partner with exceptional founders to build the next generation of world-changing companies, combining innovative ideas, expert guidance, and investment capital. PSL operates through two primary arms: PSL Studio, which focuses on creating new startups from scratch, and PSL Ventures, which invests in early-stage companies. Our mission is to drive innovation and growth by providing the necessary resources and support to turn big ideas into successful, impactful businesses. If you have a groundbreaking vision, connect with us hello@psl.com, and let’s build something extraordinary.