Fundraising Seasonality

The ebb and flow of markets, including fundraising markets, often has nothing to do with you. Yet it can be disconcerting when it feels like all of a sudden you are alone in a woods full of crickets, so being aware of fundraising seasonality can help.

When I began raising money as a startup CEO, my relentless focus was on accomplishing my goal of securing the resources we needed to build our startup successfully. Fundraising is like sales. You identify likely targets, reach out to them to begin a conversation and try to attract interest, handle seemingly endless questions and objections, and continually look to close the deal. Alongside the day-to-day of trying to build the startup, pursuing fundraising seems to require endless effort and time. Then, with seeming suddenness, your targets seem to slow down or disappear. Responsiveness drops. And you start to worry that you have done something wrong.

It is possible that you have a fundraising story that just will not attract investors. If you do, then that is a more existential fundraising problem requiring you to go back to the drawing board to ensure that you have devised a fundable enterprise and collected sufficient evidence to convince possible investors of your extraordinary potential. Alternatively, you can revamp your plans to avoid the need for fundraising at all.

There could, however, be another phenomenon at play. You may just have hit one of the ebbs in the fundraising marketplace. It took me a few years of fundraising to become cognizant of the ebbs and flows of fundraising markets. Often, first-time fundraising founders do not yet have the experience to recognize these patterns.

Let me share an example of what this looks like. A few years ago, I was trying to help a first-time founder who was seeking to raise a round from small funds and angel investors. We happened to be having a get-to-know-you conversation in December. Since one of a first-time founder’s questions for me usually involves figuring out how to raise money successfully, I asked him about how much he was trying to raise, how fundraising was going, and when he hoped to have a first closing. He confidently declared that he was planning an initial close of nearly $500K by the end of the following week (which included December 31). I thought, “Wow! That will be an accomplishment!” and asked him for details on who his investors were and what he planned to do with the funds. His answer stunned me. He said he was still working on nailing down the specifics of who the investors would be, how much they would each commit to, and working out the closing logistics. Turns out he had not spoken to his largest potential investor since October, did not have a term sheet or legal documents yet, and still believed that closing in the last week of the year was plausible. My thought was, “Oh, dear. This CEO does not understand so many things about fundraising, especially that closing a first round in the last week of the year is practically miraculous. This round he is anticipating is nothing more than a mirage.” 

Now, to be absolutely clear, it is sometimes possible to close a round in late December. I have personally done it twice, once on December 15 and once on December 31. However, for that to happen, you must have very obviously motivated investors who have a reason to get the round closed before the end of the year. In addition, all the moving parts with lawyers and such will be well underway weeks before such a closing. If, however, you do not have those two indicators of overwhelming momentum clearly in play,  you should expect that the gears will begin to slow down dramatically towards the end of November (when the U.S. celebrates our Thanksgiving holiday) and into December and stay slow likely through January. The reason is that as the end of the calendar year approaches, those who have money to invest, whether they are angel investors or VCs, will typically turn all of their attention toward finishing up whatever deals they already have in full flight from the fall “high season” and then focus on enjoying a well-earned vacation break enjoying time with their families or travels to exotic locations. Then, it will take some time to ramp back up as the new year gets going. What they will not be doing is the heavy lifting to wrestle a new deal into submission. This pattern is even more pronounced with angel investors than VCs, who are professional investors pulling a full-time paycheck.

This same pattern of distraction also comes into play over the summer, with a particular emphasis on August. Investors are often parents or grandparents who like to take advantage of extra family time during the summer when school calendars permit family vacations and international trips. The consequence is that everything slows down a bit as various parties are on overlapping or sequential vacations, which slows the cadence of scheduling meetings and business decisions immensely.

If you step back and consider the annual fundraising activity rhythm of a typical year, you will notice that holidays often mean slowdowns and the extended times between holidays will be crammed full of activities as the focus is on getting prospecting, due diligence, negotiating, and closing deals done. While not universal, there is enough of an effect that those who are fundraising will find that their progress goes from being manic to sluggish depending on the time of the year as investors’ attention on investing activities ebbs and flows. When you think about it, one of the nice things about being an investor, especially an angel, is that you are not obligated to invest. The ability to be an angel often results from a long journey of building wealth. As a result, it is well for fundraising CEOs to remember that angels have their own life priorities that tend to influence when they want to spend time examining deals as they are not doing angel investing full-time.

So, what does the pattern of intensity and progress for fundraising look like?

• First Quarter: Often, there is a slow start through much of January as vacations wrap up, then recovery from vacations, followed by an increasing pace heading into February and March.
  
  
• Second Quarter: April and May are high season, with some slowing down as summer holidays begin in the second half of June.
  
  
• Third Quarter: The week of the Fourth of July is often a wash, with continued progress only moderate for the rest of the month. August is often one of the most severe seasons of crickets in the woods, followed by a big jump in activity beginning right after Labor Day weekend in September.
  
  
• Fourth Quarter: October through the first half of November is high season as there is frenetic activity to get deals lined up, followed by winding up starting around Thanksgiving and ending with the second half of December being another epic dead zone for activity.

Tactically, when I am fundraising, I take whatever vacations I can afford in the deepest of the fundraising dead zones and ensure that I protect my availability to be responsive to investors during the high seasons. Furthermore, I do not try to force investors to commit and fund during the deeper dead zones (late December and August) unless there are exceptional circumstances. I also remind myself that investors’ nonresponse during quiet periods is likely to have nothing to do with me or my investment opportunity. Plus, I sometimes take advantage of those periods to take some time to update my fundraising materials so we are ready to hit the ground running when the window opens again.

One last pattern to be aware of is that the year of a U.S. Presidential election is often a quieter fundraising season as investors turn cautious due to uncertainty about the implications of who is elected. This pattern is especially pronounced for startup businesses dependent on government support or regulatory decisions that may influence which party comes out on top. 

Hopefully, this blog will give you some patterns to align with as you seek to use your limited fundraising time and energy best.