A Strong Company Gets You a Term Sheet. A Strong Process Gets You a Valuation.
Q1 2025 was the busiest fundraising quarter that we’ve seen in years (something I predicted recently in my Things I Think I Think: Q1 2025 post 😉). According to Crunchbase, it was the strongest quarter for startup fundraising globally since Q2 2022, with a 17% quarter-over-quarter increase in funding vs. Q4 2024 and a 54% year-over-year jump from Q1 2024.
The biggest increase was in later-stage deals — led by Open AI’s massive $40B funding round — but we also saw an incredible number of companies raise Seed and Series A rounds for businesses that are firing on all cylinders (note: Crunchbase’s data shows a slight drop in Early-Stage and Seed funding in Q1, but given that many of these rounds only see the light of day months or years later, I expect the data will show an increase in funding across-the-board when the dust eventually settles).
I was personally hands-on with a half-dozen founders in my portfolio who were fundraising in Q1 and many more through mentorship programs like Creative Destruction Lab. Almost all of these companies successfully closed their funding rounds — and they should have, because they all had strong, high-potential businesses.
But not all of them got the valuation they wanted.
The biggest difference? Whether or not the founders ran a tight fundraising process.
Pick a sports analogy. Any sports analogy.
When I was at 500 Startups, Marvin Liao would start every batch’s fundraising course with some version of the following statement:
“Over the next few weeks, we are going to teach you how to run a proper fundraising process. Effective fundraising is well understood. If you put in the work to prepare and run a tight process, you’re very likely going to get the result you want.
We’re going to teach you how to run a tight fundraising process, but not all of you will listen.
Some of you think that you’re special. Some of you think that the rules don’t apply to you. Some of you think that you don’t have to put in the work or that you can fundraise part-time. But fundraising in Silicon Valley is different.”
Sure enough, in every batch there were a handful of founders who “thought they were special.” Founders who either didn’t put in the work to fully prepare or didn’t run a strong, tight fundraising process.
And every single one of those companies either failed to raise their round or raised what I will diplomatically call a “suboptimal round”.
In my experience, there’s a direct correlation between how easy it was for a founder to raise their initial round of capital (whether it be friends-and-family, angel or Pre-Seed) and an over-confidence going into their Seed or Series A round. Founders who raised their first round quickly and with minimal effort often underestimate the effort required to raise true institutional capital.
This is especially true when founders from outside of California attempt to “make the leap” and raise a Seed or Series A round from Silicon Valley VCs.
I’ve written at length about high-velocity fundraising, the fundraising approach recommended by most Silicon Valley accelerators and VCs. There are subtle differences to the fundraising systems taught by various firms, but they are all based on the same 3 pillars:
Preparing and refining the pitch deck and fundraising materials in advance
Building a sufficiently large, fully-researched target pipeline (and identifying people who can introduce you to as many of those target investors as possible)
Executing a tightly-controlled fundraising process with densely-packed meetings
The goal of high-velocity fundraising is to get as many qualified investors through your funnel on approximately the same timeline. Running a strong process maximizes the likelihood of competition amongst investors at the end.
What if we replace Shark Tank with a version of American Gladiators where the investors have to fight for the privilege to lead a round? 🥊
Econ 101 teaches us that competition for a scarce resource (in this case, your equity) leads to increased prices. That fundamental fact is why it’s so important for founders to prioritize fundraising. And it’s ultimately why a strong company gets you a term sheet but a strong process gets you a valuation.
Unfortunately, some otherwise exceptional founders don’t go all-in on fundraising. The result? A scenario that I’ve witnessed far too many times:
The founders of a strong company run a weak fundraising process and eventually are forced to make a life-altering decision based on a single term sheet (with a less-than-ideal valuation).
How can you avoid this? Here are the three biggest mistakes founders make that negatively impact their ability to drive competitive dynamics:
1. Not Building a Large Enough Target Investor List
Before you send a single email or take your first call, you should have a fully-researched pipeline CRM with a minimum number of qualified target investors:
Pre-Seed: 100 – 150 qualified target investors (a mix of angel investors and VCs)
Seed: 80 – 100 qualified target investors (mostly VCs)
Series A: 60 – 80 qualified target investors (all VCs)
Series B: 40 – 60 qualified target investors (all VCs)
“Fully-researched” means that for each VC, you’ve identified the specific partner at that firm who you want to meet with, figured out who can help you with an introduction, and pre-written a personalized request-for-introduction email.
2. Delaying Investor Outreach
Over the years, I’ve seen too many founders build a solid target investor list, only to delay hitting “send” on all of the introductions. Maybe it’s an overconfidence issue (“I don’t need to talk to all of these investors to get the round done”) or maybe it’s a lack of confidence (“I’ll test out these ones out first and see how it goes”). Either way, if you’re not triggering all of your introductions, you won’t be able to generate a dense enough meeting schedule to get the outcome you want.
Effective fundraising requires a carefully-choreographed meeting schedule. Delaying introductions by even a few days can have a catastrophic impact on your competitive dynamics.
3. Fundraising Part-Time
Effective fundraising is a full-time job. Too many founders think that they can fundraise part-time while still writing code, selling or handling customer support.
I get it. But the difference between full-time and part-time fundraising can mean the difference between 40-50 investor meetings per week and 10-20.
Which can be the difference between competitive term sheets and “we’re not going to be able to catch up, so we’ll have to bow out.”
If you’re not prepared to dedicate 3-5 weeks to full-time fundraising, then you should think long and hard about whether or not it’s the right path for you. That’s easier said and done (especially when startups are resource-constrained at the best of times), but raising capital is one of the most consequential financial transactions in the life of any company. You simply can’t afford to treat it as just another task on your list.
At the end of the day, strong founders of strong companies will almost always get a round done, even with a weak process. That’s proof that they’re onto something.
But I can tell you that it’s a bittersweet outcome to close a funding round knowing that you left money on the table.
It’s an expensive lesson to learn. And one that you can generally avoid.