Aligned on Success

Startup fundraising is a grueling process. By the time the deal closes, a startup leader often feels embattled and exhausted, wondering if taking on investment is possibly the worst thing ever. Yet there is light after closing.

Pre-Close Fundraising Stress

The market for investment dollars is intensely competitive. Many are the startups vying to capture first the attention and eventually the commitment of investors, each with their own investment thesis and requirements. The process is rife with rejection and seemingly endless feedback about the weaknesses of the business in its current state. And the stress and pressure is not only on the startups – the investors feel it, too, as they seek to sift through endless pitches to find the gems that capture their imagination while competing and collaborating with others, pursuing good ROIs, making tough decisions, and fundraising themselves.

Finding the right fit with a lead investor means knocking on many doors and intense, seemingly circular discussions to reach a consensus on the keys to success and how the startup team aims to execute its plan. Working with a lead investor to build a sufficient syndicate means knocking on many more, repeating the plan and the case for believing success is possible.

Even once you have investors who have arrived at conviction about your deal, there is a final “glide path” to the closing phase, which involves the contentious process of negotiating the next layer of detailed terms, finalizing due diligence and deal documents, and then herding cats to execute the closing process.

And during all of this high-stakes fundraising activity, there is the relentless pressure to continue progressing the business forward, a more than full-time job in and of itself, while simultaneously responding to the relentless demands of the fundraising process, which competes for time, attention, resources, and everything else that is in such short supply while pretending that you have endless energy and optimism to offer.

Perhaps there are exceptions out there – early-stage funding rounds that get raised and closed with a minimum of fuss and effort – but most rounds I have been involved with as both a startup CEO raising and as an advisor to startup CEOs who are raising are intense. There is a spectrum, of course. Some rounds are easier than others. Some rounds are littered with crises but still manage to get done. Some fall apart completely.

By the time the money is finally in the bank, everyone involved in the deal, including company management, leading investors, and involved attorneys, tends to be worn out and ready for it to be over. Here are a few real-world quotes that capture the profound sense of exhaustion and frayed feelings that emerge on the journey to closing:

• Entrepreneur: “Yet another investor just told me that the valuation I agreed to is too low, but they aren’t willing to give me better terms. What am I supposed to do with that besides feel bad?”
  
  
• Attorney: “This isn’t a gotcha game, but it is what the opposing counsel will insist on. I can make the case, but ultimately, we will lose on this point.”
  
  
• Lead Investor:  “Do they understand that this is what it takes for us to syndicate this round? Fundraising risk is real!”
  
  
• Attorney: “Ha! Rounds never close on time.”
  
  
• Entrepreneur: “I just feel like I have to keep giving and giving and giving. Isn’t there any balance in this negotiation process?”
  
  
• Existing VC Investor:  “I will never be able to get my partnership to agree to this. This is just non-negotiable.”
  
  
• Entrepreneur: “How am I ever going to work with these people? Can I trust them not to kill my business, or will they make my life impossible?”
  
  
• Lead VC:  “This was my worst ever round getting to close.”
  
  
• Attorney:  “I can take that call to review changes to the documents after my kids are in bed.”
  
  
• Entrepreneur: “I am just so glad that this is over. Now I can get back to building the business.”

Indeed, towards the end, everyone involved usually has so much time and energy invested in getting the deal done that exhaustion will result in a “can I live with it?” fatalism because giving up on the deal (although things can go wrong!) gives it some final momentum of its own.

The Transition

Sometimes it seems like the process will never end. The closing will never happen. And we will all be in purgatory forever. It is common to end up feeling really prickly about the people we have been in conflict with as we negotiate with opposing interests from opposite sides of the table. All those worn-out feelings can devolve into frustration, disappointment, exhaustion, and even anger as the difficulties of the closing process erode relationships.

Yet, there is hope.

Once the closing is completed and everyone gets a chance to take a breath and unwind a bit, things can start to shift. After all the documents are finally signed and they sink their money in, investors transition from those who were seemingly battling endlessly on the other side of the table to coming around to the entrepreneurs’ side of the table. Now that the guard rails are in place and the fuel is in the tank, the opportunity to succeed is before us all together.

Post-Close Alignment

The truth is that the investors who bought into the startup business really did believe in the potential of the business. They saw something good there. They believed in the vision, the management, and the possibility of great success.

Now that we are past the endless prickly negotiation, it can feel like a new dawn. In fact, it is worth actually facilitating the emergence of that new dawn feeling. Here are a few ways to help lock in that productive new alignment:

• Take a breath, get some sleep, and remind yourself that all that negotiating is just part of the process of putting millions of dollars into a hope, with lots of bad experiences embodied in the investment documents. Just let that go and turn your eyes forward.
  
  
• Say “Thank you” to those who persevered through that rough stuff at the end. A little appreciation goes a long way toward repairing frayed relationships.
  
  
• Remind yourselves and your new partners why you and they are excited about this business and what this new funding can enable. Remember together why you all decided to go down this road together.
  
  
• Assume that investor and management goals are aligned on achieving the vision of future success – and treat each other as partners in figuring out how to contribute whatever wisdom you can to achieve that together. Assume good intentions and collaborative efforts rather than endless conflict. Go for win-win.
  
  
• Communicate on a regular cadence so that everyone gets a chance to participate in the journey forward. Entrepreneurs, please share progress, hurdles, and asks. Investors, please share ideas, connections, appreciation, and encouragement.

While fundraising is grueling, once you are past the closing milestone, it is time to transition from being on opposite sides of the table to being on the same side of the table, aligned on translating that new investment into as much value-building success as possible.