What’s the founding story?

This question is my absolute favorite to ask when I first meet a team who is fundraising. The answer narrates how founders meet and eventually come together, how the idea for the current incarnation of the business emerged, and how the (inevitably) winding road of the initial days given rise to the current perspective and approach. In short – telling a founding story lends insight into all of the intangible details that make this start-up a unique coming together of real people, not just a valuable coming together of human and technological capital.

This narrative also speaks to the culture of the leading team and how it will spread through the others that will follow. And asking about the founding story ignites an entrepreneur’s passion which truly drives him/her beyond the facts and figures of the business. Whether it’s a relentless pursuit towards solving a problem or an “ah-hah” moment that a problem could be solved, the distinctive details which emerge from the founding narrative bring to light a set of information that few other questions could.

What is your “favorite future?”

Success takes on many forms. Of course a founder can generate a financial forecast and opine on potential exit options years from now for a pitch deck. But asking about a future scenario – again, a real story – that is his favorite, really lends insight into the goals, values, and assumptions embedded into the company. Giving the opportunity to hear one of the possible incarnations of what could happen to this company, really as the next chapter continuation of the founding story, sheds light onto the framework of how decisions are going to be made as the company matures.

What else should I be asking you?

This question is quintessentially open-ended. And great entrepreneurs thrive with the possibilities that a blank canvas provides. A non-specific inquiry sets the stage for an entrepreneur to talk about what s/he wants to talk about beyond the rigid/formality structure of a pitch deck. And to frame a question where the answer is a question itself creates a role reversal that bridges a connection between two of us in a conversation. This question can also drive a discussion towards the real meaningful core issues which will be pivotal in making an endeavor a success.

In sum, all three of these questions above are about context. They allow for a better understanding not of what “the pitch” is today, but rather where the company has been and where it is going, along with how the entrepreneur sees himself and his company in a greater landscape. It provides for an easier way to find a common language between two parties in a short one-hour meeting when the heart & soul of a startup is reduced to a dozen slides, which by definition is impossible to do.

But most of all, these questions opens the discussion to a true conversation – a meaningful dialog where there’s a real exchange back and forth between an investor and entrepreneur, not just a one-way monologue. This approach follows into the ethos which we live by here at NextView in treating each entrepreneur as we’re an “invited guest” at their table. It is my hope when asking these (hopefully thoughtful) questions during an initial meeting sets that very tone .

What are the best practices for going from zero to sixty with a marketplace startup? I’ve observed a couple of strategies and approaches for overcoming cold-start inertia:

1. Offer supply side value for being present beyond just buyers. One way to jump-start a marketplace with sellers is to attract them to a platform with carrots other than buyer demand. The most often I’ve seen this approach work is through a fostering community of sellers, where these sellers find benefit in just interacting with each other. Communities like those of uTest (software QA testers), as well as NextView portfolio companies GrabCAD (mechanical engineers) and thredUP (parents), which resulted in marketplaces had origins in this approach.
2. Attract would-be buyers with research/learning about purchasing… suppliers will follow. Even if the supply isn’t there yet, it’s possible to capture buyers’ attention earlier in their purchasing process. If a web service provides content which helps a person or organization learn more about what and how to buy, then it becomes a trusted source for later in the buying process. And with an audience of hungry buyers circling, supply is much easier fill.  It’s perhaps an older example, but Bitpipe (sold to TechTarget in 2004) did just that in becoming the largest distributor of IT white-papers which attracted CIO buyers.
3. Brute force a mini-market and expand. Rather than create a broad market at the outset, another approach is to concentrate deeply to create very specific marketplace liquidity and branch out from there. Often this focus can be on a specific geography or vertical. Some startups which have started in Boston with this strategy are TaskRabbit (personal assistance in particular location), Zintro (experts in particular domain), and Care.com (caregivers in a specific vertical and geography) have utilized this methodology.
4. Piggyback off an existing marketplace.  Often there are more generalized marketplaces that a focused start-up can utilize as an initial launching-point for acquiring liquidity.  For instance, I know of a couple startups which are successfully posting as both buyers AND sellers on a vertical category on Craigslist to siphon an initial base of traffic for their service (though they probably don’t want to admit it publicly).
5. Develop/leverage meaningful relationships so sellers are patient during an initial phase. Sometimes even the promise of would-be buyers is so enticing that suppliers are willing to work with a startup in joining a marketplace early. This situation can be further facilitated if some of the founders have an existing relationship with the suppliers prior to starting the company, or they are able to develop a meaningful relationship with them once they’ve initially bought into the idea given the innovative offering.  (This approach is especially effective when the supply-side is concentrated in a smaller set of players.) As an example, the management team of NextView portfolio company Mojo Motors came from the automotive industry, so they were able to forge new and leverage prexisting relationships with car dealers in getting the company off of the ground. And our portfolio company TurningArt immediately after starting fostered meaningful relationships with artists (by offering a new channel to gain exposure) to build their own supply of art.
6. Some combination of the above. The above approaches aren’t mutually exclusive, and utilizing more than one in a combination results in an even greater opportunity to begin turning the flywheel.

As a general rule, once a true market is going, I’ve observed that the supply-side often increases in step-functions, while the demand-side grows incrementally. Typically, there are factors (sometime external) which “switch on” the supply side so that a rush or influx occurs spurring quick and meaningful growth. Whereas on the demand side, it usually grows organically in a smooth fashion as the service expands. In either case, there’s continually a challenge in matching the right levels on both sides so that there is a stable enough balance for a service to grow. But the most difficult challenge is starting the marketplace engine in the first place, which can be sparked with one of the techniques above.

Not only does it communicate an outward message, but like a face, a startup office provides insight into what’s going on underneath the surface.

A startup’s space tells a story to everyone who is involved with a company spending time there: founders, employees, investors, and (potential) customers. The physical environment in which startup employees work (should) match the company’s story and culture. It starts at the beginning of a startup’s life, when both the company and the space it resides is extremely early & raw… a sparse space with minimal (read: cheap) furnishings speaks to the frugality required when it’s in pre-funded bootstrapping mode. In an older post from a few years ago, I recount how all of us co-founders at our startup Sombasa Media initially built our own desks out of necessity (they were much cheaper than having someone else assemble them), but then building a desk became a rite of passage for any new employee beyond when it was required for monetary reasons – this physical act translated into a symbolic one of everyone in the company building a company together.

As a startup grows up, there are (relatively) more resources to select furnishings and pay attention to layout and design. Then even more so, since the company is in the position to make some choices (rather than just take effectively whatever is available for free/cheap), the top-level selection of the space itself and the subtle choices in implementation speak quite a bit to the values of the company – what’s (and who) is important and why.

And startup office is not just about inside, but as any real estate person will tell you – location, location, location. At the end of the day, where a startup is located is a balance between cost and the optimal place to attract the best employees. So it’s not just about proximity for commuting, but also ready access to after-work camaraderie (read: bars) and community events. In Boston area, it’s no secret that there’s been a trend over the last few years of startups moving to Cambridge, and even more recently to the Innovation District in downtown Boston, because of these very factors. VCs’ office locations are a lagging, not leading, indictors of where the startup activity is… I’ve explained why we at NextView chose our office space in a previous post. But it largely comes down to we want to be where entrepreneurs are.

As general rule, when a VC emerges from their own office to visit a prospective portfolio company, it means s/he is really serious about possible new investment. Here at NextView, we like to visit offices of startups earlier in the process than a typical venture firm because it’s a useful way for us to understand the “vibe” of a company and see first-hand if the story which is told in a pitch syncs with the reality of what’s happening. (I recall a specific moment once when I heard a pitch from an entrepreneur about how efficiently they were using the capital they’d already raise, but was completely surprised at the lavishness when I’d visited the offices.) Visiting startup’s offices is a good reality check and validator in a diligence process, as well as a way to build a meaningful relationship with everyone at a company, not just the CEO/Founder(s).

There isn’t one “right way” that companies’ offices should look, regardless of how establish they are. In fact, since startups are unique, so should their offices be. Prior to writing this post, I tweeted out, “Writing a blog post about how a startup’s office space reflects its personality/culture. Send me a pic of your startup’s office and why,” and I received some pretty cool responses which fit into my thesis – these startup faces are a reflection of themselves:

• Coach Wei and the team at Yottaa literally “built their own office” from moving in the refrigerator, to assembling furniture, to building shelves. To me, it’s clear they have a very team-oriented atmosphere.
• CustomMade, a NextView portfolio company, embodies their whole company’s purpose – connecting creators of custom good with people who want them – in furnishing their office with all sorts of custom furniture. As co-founder Seth Rosen said, “All of this stuff helps people remember how cool custom stuff is.”  They have a great blog post detailing how their logo was custom woven onto a rug for the entrance in the office. Also, they took a page from Google and work on doors and sawhorses as desks, which are extremely cheap to setup, and very easy to move. The company is always changing around the layout setup to keep things fresh and people collaborating, which is reflective of their fluid organizational structure.
• Dharmesh Shah from HubSpot emailed me a link to a post which detailed the thinking behind their office space move last year.  Although growing quickly, they did not want to lose their “entrepreneurial start-up aesthetic” and “wanted to engage and be respectful of the post and beam mill structure aesthetic [of the location], yet simultaneously have a contemporary palette of materials that spoke to their avant garde place in the technology industry.” I think the outcome reflected those values which I know are true to the company.
• Lastly, Co-working center Intrepid Labs in Cambridge has a vibrant space resembling an open canvas. As it fills with occupants, Ty Magnin commented “we hope it will evolve rather organically” along with the culture.

The expression on a person’s face is always telling, and the same is true for a startup’s space. I think all of the above instances are proof that’s the case.

I recently received a email from an entrepreneur who I know with a genuine question about terms of his financing: “How do you guys at NextView feel about one of our investors holding super pro-rata rights for the next round?”  We at NextView Ventures have more recently seen super pro-rata rights introduced by other investors in a couple of the rounds which we’ve participated, and have started to see a pattern emerge of the consequences of this insertion.

On the subject of super pro-rata rights, a couple months ago Brad Feld wrote a blog post “Just Say No” and Mark Suster (after detailed explanation of both pro-rata rights and super pro-rata rights) summed up that the reason not to take them is “you might make it difficult for you to get your company funded in the next round.”  Mark’s argument is essentially that they make the entrepreneur’s next fundraise more difficult because of the signal value associated with whether or not the existing VC investor is going to exercise those pro-rata rights.

But the reason that super pro-rata rights aren’t super goes beyond just how that VC with those rights acts as the next round approaches.  These rights fundamentally misalign incentives on how the company is operated, which is bad for both an entrepreneur and the VC.  The rationale for the negative effects of super pro-rata rights comes down to VC math in which the latter of the three dimensions for the next round – valuation, amount raised, and dilution % – already becomes artificially fixed.  So in order to successfully raise at a higher $X valuation, the resulting math requires the round size to be larger.  An entrepeneur can be forced to raise more capital (which the business may or may not need) if s/he is going to be rewarded with a higher valuation.

This scenario presents a number of troubling incentives.  Prior to the next round, the startup risks being run at a higher burn-rate so that it looks positioned to need the larger financing.  Second, an entrepreneur is more likely to be compelled to put a larger dollar-amount “ask” on the cover of his next round’s pitch deck, which can hurt his chances of a successful fundraise if the business isn’t ready yet for a large financing (but would be for a successful smaller one).  With super pro-rata rights in play, if an entrepreneur is going to give up a specific % of his company in this round anyway, he’s motivated to make that as large a round as possible – which might not be the right thing for the business as well as decreasing the chances for a successful fundraising process.  And then, lastly, even if the larger amount is raised, again, it can over-capitalize the company, which changes the dynamics about how the business is run subsequently.  All of these scenarios are not just detrimental to the entrepreneur/startup, but also to the VC funders themselves who want to eagerly invest in a company which is doing well.

I see super pro-rata rights as another VC term-sheet bell & whistle which stem from genuine and legitimate intentions (allowing a VC to own more of a company it likes a lot) that result in misaligned incentives between an entrepreneur, investor, and what is “right” for the business.  As a general rule, deviation from a simple and elegant term sheet (especially in early rounds of financing) can cause strain, and super pro-rata rights is just another (new and emerging) example.

We at NextView Ventures believe that one of the next waves of online shopping is the accelerating trend of consumers purchasing high-consideration goods: “considered commerce.”  In other words, people are now buying things online which take more than a few (dozen) minutes of reflection.  And not surprisingly, the most salient reasons that these items are given more consideration are that the cost are higher, they often take up more space in a person’s life/house, and they’re experienced over a longer duration.  In many cases, there were already cases of these types of products already being purchased online, but given a new wave of innovation and greater acceptance, I think we’re at an inflection point where an increasing number of high-ticket, larger, enduring goods will be bought on the web.

Selling high-consideration goods online is not just about publishing a web product catalog with features, specs, and reviews.  It’s about helping foster consumers though a rich buying experience.  Sometimes it’s a trial or another way to experience the good before its purchased.  The innovation happening in this space now is centered around the way vendors present, inform, and consummate a sale.  Whether it’s offering membership into a perceived exclusive club or utilizing a renting-to-own scheme, these new e-commerce services provide enhanced comfort around a purchase and ensure confidence about making the right decision without actually touching it in a physical store.  In our NextView Ventures’ portfoiio, we’ve already invested along these theme in backing Mojo Motors (changing the model for used automobile purchases online) and TurningArt (empowering consumers in making meaningful artwork more accessible).

Continuing this thesis, yesterday it was announced that we at NextView made an investment in Cambridge-based CustomMade along with Google Ventures, First Round Capital, Founder Collective, Launch Capital, and angels.  CustomMade founders Mike Salguero and Seth Rosen have already built a truly exceptional service – their web marketplace connects consumers interested in purchasing custom goods with thousands of custom makers who can specially create them.  On CustomMade.com, you’ll find makers of everything from wood furniture craftsmen to metal jewelry artisans and everything in between.  The startup’s offering has solved many of the pain-points which consumers face when purchasing not only a higher-priced luxury good, but a unique and custom one at that.  The user experience provides for the enhanced discovery of skilled artists, the browsing of example items within a maker’s portfolio, the ability to receive numerous proposals from many talented craftspeople for their potential piece, and the trust in a payment process intermediated by the CustomMade as a fair and independent third-party.  All of these features (among many others) by necessity empower consumers to not only secure comfort in purchasing a high-consideration item, but also enjoy an optimal experience with the whole process of a personalized item being created solely just for them.

Our decision-making process at NextView for new investments always boils down to weighing three primary factors – team, market, and product.  We are delighted in this case because CustomMade already excels in all three dimensions and has the potential to grow into so much more.  We’re very excited to be working with Mike and Seth to be a small part in helping them build a company that is riding a megatrend in the next wave of e-commerce.

I hear all of the time that “you shouldn’t fundraise in the summer (especially August) because VCs are all on vacation.”  Or that “you shouldn’t begin fundraising prior to the winter holidays because they interrupt the flow too much that the conversations will lose momentum.”  Or even “you shouldn’t fundraise when ‘everyone else’ is fundraising” (like right after Labor Day or immediately after New Year’s) because there will be too many other companies coming in the pipeline spinning VC’s cycles.  All of these statements have merit to truth in them – many VCs are distracted during end of the summer, the holidays can disrupt an ongoing dialog, and too many other inbounds will cause a VC to be distracted. 

But I think that these fundraising rules of thumb are only truly useful all other things being equal – and in reality, all other things aren’t equal.  Frequently there are more important factors which trump this conventional wisdom.  All of the above are naturally occurring events which happen every year.  And if an entrepreneur is VC fundraising during those seasons, things may perhaps proceed slower.  Yet, if a company is going to successfully fundraise, it will happen regardless of timing, and it won’t happen if wasn’t going to anyway.  At the end of the day, I believe it will just a bit tougher to push the process forward at an accelerated pace during these and other non-ideal seasons. 

The situation which I think is worse is doing something unnatural – fundraising when the business itself isn’t ready for it because the timing is purely dictated by the calendar.  This approach can happen when a startup is raising capital too early, waiting too late so that it puts itself into a potential cash crunch, or in between milestones which would warrant a better valuation… all just to avoid these seasonal fluctuations.

Surely, it makes sense to take the calendar into account for fundraising, but don’t let the calendar take you somewhere you don’t want to go.  And if your company is ready to start VC fundraising just a few weeks here before Thanksgiving, then that’s when it’s the right time to start reaching out to schedule a few pitch meetings.

But the one dimension to optimize around which I rarely see discussed (and followed) is VC firm partnership buy-in.  The buy-in issue can come up with regards to “signaling” for when a VC participates in a Seed round (… will they step up to lead a Series A?), but with a Series A itself it is much more acute for two reasons.  First, it’s different because when nearly any venture partnership invests >$1M into a startup, they begin to treat it as a full investment by explicitly internally reserving additional future capital for it.  Second, unless the company is a truly break-out win that supports an entirely new venture firm coming in to buy an additional 20% in the Series B, (in this current market especially) Series B rounds are quite frequently done by insiders even when the startup is progressing.  Especially if the Series A was competitive and pushed to a high price, there will be increased skepticism within a partnership about further supporting the company with an inside round if things didn’t transpire exactly as planned.  Given the dynamics of significant potential for an inside-led Series B, an entrepreneur ideally wants to have as much Series A partnership buy-in that his startup is worth supporting for the long haul.

This issue matters more in a larger partnership, as diffusion of responsibility of who leads an investment becomes more dispersed and placed solely on the shoulders of one specific partner.  Generally-speaking, small partnerships hash out a potential investment together, whereas large partnerships assign responsibility to an individual even though they make “partnership decisions.”  But even among large partnerships there is a gradation, where some firms operate as a conglomerate of Lone Rangers and some are more collaborative in nature.  The typical advice is to address this issue is to target a senior partner (with the most influence in the firm) to lead the round and avoid junior partners.  However, I think this route is misguided both because it doesn’t take into account that a senior partner may not be the most appropriate person to join your company’s board and there are sometimes otherwise internal political waves within a firm that aren’t visible to an entrepreneur that will affect a specific portfolio company’s stature and perception within it.

The solution to the buy-in problem is to spend as much time with multiple partners throughout the fundraising process and afterwards.  While a shorter fundraising process is better from a timeframe and deal heat perspective, it’s better for an entrepreneur for that process to be comprehensive as possible.  You want your VC to really dig in and understand the business – and fully socialize with the entire firm.  If the firm has multiple offices, my recommendation would be to just happen to find yourself in NYC/Bay Area/Boston/London and meet with another partner to share the story.  Pitching your startup in person is always better than over a video-screen.  If an investor misses hearing the story during a partner meeting but things are proceeding anyway, (at least meaningfully offer) spend the time to catch that missing partner up to speed.  The goal is to be as exhaustive as possible within reason for everyone in the firm to fall in love with your company, not just the partner who is leading the investment.  Then, assuming you have more than one Series A funding option, take the partnership buy-in dimension into account when selecting a firm in addition to valuation and terms. 

And the buy-in process doesn’t end after the investment has been made – it’s the old idiom about always be selling.  Make yourself known occasionally around the VC’s offices after the investment has been closed by borrowing a conference room for a client meeting or executive offsite.  If you’re invited to present at the annual LP meeting (which is a good signal), spend time schmoozing with the growth equity team or the clean-tech side of the house.  Out-of-sight is out of mind, and in a larger partnership the intangibles of perception and buy-in really do count.  The more that you do to socialize yourself within a partnership after a Series A, on the margin (holding performance constant) the more likelihood the firm will step up to support on the Series B even without a new outside lead.  But remember, at the end of the day, it’s the company performance matters most.

It’s interesting to take step back and look what’s transpired in the year since that post.  I hypothesized that, “Perhaps a contrarian statement in this environment: but even though there’s been a dip in fund size due to broad economic factors and LP appetite, it wouldn’t surprise me if the truly top firms raise even larger funds over the coming decade.”  And it’s already happening… heritage firms have indeed raised even larger funds.  Within the past twelve months, we’ve seen Bessemer raise a $1.6B fund, Greylock expand its fund to $1B, and Accel raise $1.35B across two funds.  Hardly sounds like the death of the VC industry predicted by so many.  But these are indeed multi sector, multi-geo, and multi-stage firms with long-standing LPs who are confident in their abilities as an enduring franchise to sustain elite performance.

On the Micro side, we’ve seen numerous first- or second-time specialized funds close as well, like Pivot North, Thrive, and Freestyle… just to name a few.  All of these funds were raised despite the number of firms raising VC funds going down and overall dollars going into the asset class dropping.  So what’s going on?  Who’s losing out?   The answer is that mid-sized VC funds that don’t have the scale and brand to compete broadly, but also don’t have a focused and distinct strategy, message, and offering.  These firms are caught in the middle without much taste, just like Genesee in the beer market.

I believe that we’re only the beginning of the new wave of emerging firms (and those existing ones retrenching and repositioning towards) taking a specialized offering approach.  Those venture firms firms caught in the middle without the scale of a large firm and without the focused strategy of a Micro will continue to wane.

But if the VC market is really resembling the beer market, what does that mean for the customers, entrepreneurs?

• More brewers = more sources of capital.  Especially at the seed stage, because there are lower barriers to entry for a new firm with a seed stage strategy (because of capital requirements to raise mid-/late- stage specialized fund), a plethora of new firms will continue to be founded.  All of that choice becomes a double-edged sword for entrepreneurs, but in the end is of course net positive.  Founders benefit of having more funding options is certainly preferable, but there is a substantial onus on entrepreneurs to navigate an increasingly crowded and clouded landscape.  While social media has brought greater transparency to many aspects of the VC business, it’s still a relationship-driven and moderately opaque industry.
• Local brewers = geography matters.  As macrobrew VCs are increasingly spending time in multiple geographies (separate from their HQs) there is real potential to differentiate along knowing that you can actually sit down and see your VC face to face.  For some that’s important, but for some that’s a negative.  Just as some people here in Boston prefer drinking Cambridge Brewing Company ale; others could care less it was brewed locally.
• Specialized brewers = increasingly specialized sectors will cut beyond just a broad domain focus.  Big Data, mobile, cloud-only are all dedicated sub-sector funds examples I know of in the IT space.  Think of it as a hoppy IPA brewery vs. one which focuses on American Ales.  How much of a benefit is it to have your mobile company backed by a firm which only does mobile?  They’ll certainly know the ecosystem and be able to share learnings and network across the portfolio.
• What’s pouring = individual partners matter.  Each brewery has its own brews, and each firm has its own people.  Individuals will matter just as much as the firms themselves because of their efforts to make a distinction from the often faceless macrobrews.  Personality fit has always been important, and this dimension will become increasingly a factor on where the best entrepreneurs turn to for their capital.
• Can’t try every beer = paradoxically, reputation and word-of-mouth will matter more.  Even with greater transparency in online, with the abundance of choice, people will look to referrals.  Discovery of the right potential venture firm that will serve as a good fit becomes a harder problem because of the sheer number of options available.  When you only had a few beer choices, you tried them all; now you’ll ask your friends (with similar preferences) what they like.

Whether buying a whole keg or just a single draft beer – raising a large round or only a seed round, the VC landscape is definitely changing dramatically for entrepreneurs.  However, the difference is that with a beer you can always select another next time, but your VC you’re stuck with for a quite a while.

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.