My partners and I at NextView talk a lot about how fundraising is about finding the true believers rather than convincing the skeptics.  The energy that it takes persuading someone who starts with a bias not to invest is much better suited searching for additional prospects who want to believe in what you’re building.  We’ve observed it repeatedly in our portfolio as Founder/CEOs seek additional rounds of financing: the engaged skeptics just never quite get there, but the entrepreneurs who cast the nets wide enough find someone who believes.

Because of this learning, we counsel our seed companies when raising a Series A to run a full & synchronized process with a broad array of firm sizes, types, and shades to determine what profile will become believers… and the same recommendation is true for seed stage startups raising their first round of capital, institutional or not.  It’s not until you have had a broad array of conversations are you able to tease out the profile of (and subsequently specific) firm(s) which will be attracted to your company.

There is a challenge with the “believer approach” mindset, however.  At some point, if a company is unable to raise an additional round of capital after speaking with numerous potential funders, the market will have spoken.  In these situations, there are strong diminishing returns to approaching a new source of capital once there is a reasonable conclusion that the round is in jeopardy.  And with the focus on searching for a believer, there is risk in an entrepreneur (and existing investor-set) convincing themselves that going just a bit broader, initiating just one more conversation, speaking with just one more firm will a new (and better) result.

I’ve seen both outcomes in a prolonged “believer” search.  Just when an entrepreneur had felt as though all options were exhausted, a bluebird firm appears to swoop in and lead a new (up) round of financing.  But I’ve also seen entrepreneurs continue to slog it out with yet another umpteenth VC meeting when in reality those efforts were better served determining an alternative course of action.

How is a CEO to know if it’s time to pull the plug on fundraising or keep searching for that would-be believer out there?

Keep searching to find believer when:

• There have been numerous final full-partnership meetings at different firms that there’s the likelihood that another reaching the same point in the process will result in a different answer.
• The company has made substantial milestone progress since the start of the fundraising process.
• The company truly is disruptive and hard for investors to wrap head their around because it’s so different.  (This one is the hardest to be accurately self-aware.)

It’s time to pull the plug when:

• The type of firms approached varied exhaustively by size, scope, profile, prestige, and other dimensions.
• The company has spoken with literally multiple dozens of VC firms.
• You’ve heard feedback that your startup is being perceived as “yet-another-XYZ” company (even if that perception is genuinely unfair).
• The fundraising process with almost all firms rarely proceeds past first or second meeting stage.
• The competitive landscape of the space you’re in is crowded or there’s a well-funded primary competitor (…VCs are having a tough time discerning your advantage over the (multitudes) of others).
• There is an unnecessary amount of time on VCs part spent in diligence on minutiae (financial models, sales pipeline forecasts) rather than discussion on big-picture direction.
• The prospect firms are qualified in that they “get” what you’re building and seem to understand the space or category, but still don’t believe.
• There is enough cash in the bank to make additional progress or accomplish specific milestones which will make the investment opportunity more attractive at a future date.

At the end of the day, lack of fundraising traction is due to either reasons which can be ultimately addressed (approach/strategy, positioning, traction/progress, etc.) or reasons which can’t be addressed (founding team DNA, market size perception, etc.).  Timing can change the former, but only a believer can see the latter differently.