A lot has been written for entrepreneurs about optimizing a venture capital fundraising process, but one aspect which isn’t discussed very often is the pacing of it. Two (seemingly contradictory) maxims that are often repeated in this context are: “it goes slow until it goes fast” and “time kills all deals.”
At the beginning of an entrepreneur’s fundraising, even if you’re running a sophisticated process, the first part of is usually just plain old slow. Either you already have a relationship with the VCs who you’re going to approach, or you’re one step away within your network to get an introduction. In either case, sending out those emails to facilitate a meeting usually doesn’t elicit an immediate response. VCs are triaging their own incoming deal flow, traveling, or are booked up on their calendar for the next couple weeks. And if there’s a mutual intro involved as a conduit, that’s just one extra layer of logistics that you need to jump through in facilitating an initial meeting. Even the next few successive conversations usually don’t move too much faster after that – if there’s interest, a VC partner will ping his network to gut-check his instincts as a diligence item and begin to socialize the opportunity within his firm, both of which (usually) take time. Usually a full partnership only talks about new investment opportunities once per week on Mondays.
The key during this initial fundraising stage in the process are three P’s: Peace of mind, Pushing, Patience. Peace of mind in that an entrepreneur shouldn’t worry early-on that a term sheet isn’t forthcoming after one conversation. Pushing in that it’s on the onus of the entrepreneur to convey a modest (but not overzealous) sense of urgency, scarcity, and timeliness to their fundraising process. And lastly, patience in that if an entrepreneur cries wolf too early in a process that “a term sheet is coming next week” or that a VC is falling behind others in the situation, he’ll lose quite a bit of credibility moving forward in dictating the pace of diligence and the process. It’s important not to over-reach in pushing the conversations to the point where a VC is going to give up pursuing an investment opportunity just because he doesn’t perceive to have enough time to “get there.”
So during the above period, it does go slow… until it goes fast. Once one venture firm signals strong interest to move towards a term sheet, only then can an entrepreneur *credibly* use that move to accelerate his other discussions. And at that inflection point, well, it can go fast. Cynically-speaking, VCs are motivated by two things: fear and greed. And perception of missing out on an investment opportunity stokes both emotions, especially the former. So if a fundraising process is pacing well, it should continually accelerate until a deal is consummated.
Which brings us to the second maxim, “time kills all deals.” Once things have begun to accelerate, any pause, interruption, or delay along the way only hurts the chances that a fruitful end will result. An increase in time allows for other extraneous factors to interject: a new “shinier” opportunity, fatigue on the initial excitement, a new competitor entering or an existing on just making waves, etc. The list continues on and on. So it’s important to note while patience is key at the beginning of a fundraising process, it’s the enemy towards the end of one. At all costs, the momentum in consummating an agreement needs to continue through obstacles (weekends, vacations, interruptions, etc.) otherwise there is the introduction of real risk in things falling apart when they may have not otherwise. So if it looks like a process with any one particular conversation (and especially overall) is slowing down, then it’s time for the entrepreneur to stir the pot quickly.
The key, then, in the pacing of any fundraising process, is to know where you are in it – either the fast or slow period – and adjust your stance and timing accordingly. It will go slow until it goes fast… or it just won’t go at all.