Over the years, I’ve heard so many clichés repeated by business gurus, entrepreneurship professors, and self-help books that would make me roll my eyes. In other words, “Yeah, I get that money doesn’t buy happiness, but come on...👀”
But, clichés are clichés for a reason. While they may seem dumb, trite, and overused, their proliferation reflects a grounding in truth. That truth just might be harder to see from where you sit.
The longer I run my business and see success, the more I get hit over the head with “aha!” moments like, “oh, now I get it…” Essentially, as I progress in my own entrepreneurial journey and advance my skill sets, a deeper understanding of these clichés hits me. I’m sitting in a different spot now and can see them more clearly.
This understanding of clichés is important for founders attempting to navigate the fundraising journey. There are tons of gurus who share repetitive advice around fundraising that might be hard to believe and understand; they might sound like dumb clichés to many entrepreneurs just starting out. Like I do with myself, I would remind founders that clichés are clichés for a reason. The fundraising advice would not be repeated so often and emphasized by so many people in a space if there weren't a core truth to them.
Be aware of your gut reaction to something that feels like a cliché and realize that while you may not understand how that could possibly be, or that it sounds too good to be true- there is a reason you’re hearing it. You should think about why and under what circumstances it grasped so many that it would be repeated ad nauseam until it became a cliché.
For me, the old VC adage that took forever to understand was “team is everything.” Early in my career, I would hear that and react by thinking “I get that team is important, but I know it’s actually more important to have…” In my head, product and revenue logically felt like they would be more important than just team. It didn’t click for me until I had difficult team experiences and successful ones. Only then did I realize that product and revenue success can be fleeting. Team is what drives and sustains all of your success. Looking back, I wish I had tried harder to understand that cliché as it would have greatly influenced many of the decisions I made over the years.
That approach to thinking about clichés in all phases of life, not just fundraising, is one I think could drive you all to grow and find success much more quickly than I have.
On to the Fieldnotes...
I hear some variation of this all the time. When I ask a founder, “When are you going to raise?” They say “I'm going to on X date because something awesome is going to happen soon…” a month or a few months prior to X.
Sometimes that awesome thing is a certain revenue milestone. Sometimes it's the launch of a new feature. Sometimes it’s onboarding a great new hire. Whatever the case, I almost always respond by asking them how much the story really changes once you reach that milestone.
In my experience, founders often overemphasize or overvalue the impact that a certain milestone will have on their fundraise. Sometimes they think a slight bit more revenue will change the valuation significantly because of the multiple that they're going after. Sometimes they think that a launch de-risks part of their business. Sometimes they're right, but frequently they're wrong. Oftentimes, the narrative changes very little. The only thing that did change is having a shorter runway to close out a fundraise, which will definitely affect a process.
If you are pegging your fundraise date to a certain milestone, I would encourage you to take a step back and honestly assess how different the narrative that you're selling is before and after that milestone. Make sure you test this, not only with yourself, but with people who are not as close to the business as you. After getting an honest assessment, you might find the milestone is not that impactful, and that you might want to start your fundraise sooner.
I talked to a founder whose initial joy at getting a term sheet turned to frustration just a few days after. The firm told her they needed a side letter with additional provisions to close the deal. There were things in that side letter that the founder didn’t love but at that point she had very little leverage.
This happens way more often that it should. To defend the VC point of view, investors sometimes do request completely reasonable changes and addendums to the standard YC SAFE. That said, there are also unreasonable things that can be demanded that, if done at the end of a process when most other VCs have dropped out, will leave a founder in a terrible position.
My advice is if you’re going to raise money on a SAFE, be ready to ask investors if they require side letters or additional provisions once you start seeing some interest. If they are a firm that asks for these things, they should have their standard asks that are easy to provide and prepare for. This will save you a lot of surprises and at least set expectations as you close out your process.
As my old colleague Ellie put it, side letters are the dirty little secret of simple SAFEs. It pays to know as much as you can about all of these things!