“How long do you think it’s going to take to get funding?” My wife asked me.
It was January, and we had just started raising money.
“My guess is we’ll be funded by June.”
It turned out I was right. We were funded by June…two years later!
We started off our fundraising with a lot of momentum. We had lots of warm introductions to VCs through the various contacts I had.
Then a very rare thing happened after one of our first meetings. A VC actually called me to pass on investing in our company.
Then something even rarer happened. He suggested I pitch to Opus Capital. He said, “I can make the introduction if you’d like, but it’s probably better if you do it yourself because they’ll ask me why I’m passing.”
I knew someone who knew one of the partners at Opus. So I thanked him for the tip, and I reached out to the Opus partner I knew.
Two weeks later we had our first meeting Opus. By early April we had a term sheet for $11M!
I was pumped!
My cofounders were pumped!
You can’t relent until the money is in the bank.
I was so confident we would be able to quickly find another investor. And we got really close with a few potential investors.
It should have been easy, right? We had a term sheet from a very reputable investor, and we had a great team, but we just couldn’t get across the finish line.
Then something totally out of our control took place:
The Great Recession happened.
Who would have ever planned for the economy going into the worst economic downturn since the Great Depression. I certainly didn’t.
At the time, you didn’t know exactly how bad things were really going to get. However, it was clear that there was a lot of uncertainty out there.
When you see banks start collapsing, you know you’re in trouble. We were still able to get meetings as the year progressed, but the funding environment just kept getting tougher and tougher.
We had one smaller fund that wanted to invest $3.5M, so with Opus’ $5.5M we would have been able to get to $9M total. They gave us their proposal in August.
However, Gill, the partner we were working with, didn’t want to work with the smaller fund. And when he called to tell me, I knew it was going to be a long, long winter.
Through the winter and the spring of the next year, things really slowed down. The appetite for investing on Sand Hill Road seemed to be about zero.
We could still get meetings, but it almost felt like investors were meeting with us because they wanted something to do. It certainly was clear they weren’t going to invest.
Maybe their thought process was, “I’m taking these meetings with the hope you’ll still be around when I can invest.”
But we didn’t give up.
We kept at it.
I added another cofounder to the mix. And we added our only angel investor, Bob.
Bob was a cofounder of one the most successful companies in our space. He was considered a technical genius. It was coup having him on board.
Bob’s presence helped. But the headwinds we faced were still strong because…
You can have investor interest in funding companies in your space change.
That’s what happened with us. The number of investors willing to invest in a Series A semiconductor company was already low when we started. It dwindled to less than 10 VCs in the Silicon Valley by the time we closed our initial funding.
There were fewer and fewer successful semiconductor startups, so it wasn’t surprising that more and more funds were backing off. The partners that specialized in our space weren’t being asked to participate in the next fund the VCs raised.
Simply put, these VCs were being asked to retire.
It’s funny because you could feel the momentum slowing in our space. Or at least I felt like the momentum was slowing.
But we kept going and, over two years after we started, we actually raised $12M.
What can you learn from my experience? Fundraising is unpredictable.
There are so many things out of your control as you can see. The economy and investor appetite are only two of them.
I have a friend who started his company five years ago. The company has made steady progress. His savings are almost gone, yet he is still hanging on, hoping the company will break through.
Or maybe you’ll be lucky like “Ray”. I started working with Ray two years ago when he founded his company.
Ray had a great idea, but he was raising money in a tough space just like I was. However, in Ray’s case, he had multiple term sheets to choose from, and he quickly raised his Series A funding of $6M in five months. 18 months later, Ray closed another $25M in funding.
The point is there are lots of unforeseen things between you and being able to pay yourself.
So what’s the smartest thing you should do? That’s easy, give yourself plenty of cash buffer when it comes to raising your next round of funding.
My friend’s experience is all about extending his runway. You may need to do the same.
Starting a company is not for the faint of heart.
Financial stress is the just the start. You’re going to have to deal with all the stress that comes with not knowing whether this massive bet you’ve made is going to pay off.
However, having a plan, even if the plan isn’t perfect, gives you an idea of how much money and time it’s going to take. Then as you learn more, you can revise your plan.