High-Velocity Fundraising
In last week’s post, I described how to build a robust funnel of qualified target investors for a fundraising round.
In this post, I’ll introduce the concept of “high-velocity” fundraising: what is it and why is it the best approach for most early-stage founders?
What is “High-Velocity” Fundraising?
The goal of an effective fundraising process is to move as many investors as you possibly can through your funnel at roughly the same pace.
High-velocity fundraising takes this a step further. In a high-velocity fundraising process, you’re trying to move as many investors as you possibly can through your funnel at roughly the same pace and as quickly as you reasonably can.
Why Does Speed Matter?
When thinking about running a “fast” fundraising process, a lot of founders incorrectly believe that the goal of this is to deprive VCs of the time to do their diligence. Implicit in this line of thinking is a misguided belief that founders can somehow “trick” investors or pull a fast one - getting multiple term sheets and closing a round before they can discover the skeletons in the startup’s closet.
That’s not the point at all. In fact, I promise you that VCs don’t skip diligence.
The reason to run a high-velocity fundraising process is threefold:
1. Your Time is Valuable
As a founder, every minute you spend fundraising is a minute you’re not spending building your business.
2. Speed = Density (of Data)
Imagine you have 40 investors to pitch. If you meet with them over three months, you’re averaging 3-4 meetings per week, which is less than one per day. Your interactions will be few and far between, making it more difficult to recognize patterns in the feedback (or even remember what the feedback was).
Compare that with a 3-week process, which would average 3-4 meetings per day for the same 40 investors. At such a high volume, you’ll quickly recognize repeated feedback or objections. Not only does this allow you to adjust your pitch more confidently, it makes it possible to identify in a matter of weeks if there is something fundamentally preventing you from closing the round.
The latter can literally mean the difference between life and death for startups (How many founders do you know who fundraised for months on end before ultimately failing? Could the outcome have been different if they knew why fundraising wasn’t working and still had 6 months of runway…?).
3. Creating a Sense of Urgency
This is the most important reason to do high-velocity fundraising.
If investors don’t perceive a sense of urgency in your fundraising process, then they’ll naturally deprioritize it relative to other deals they’re working on. This is what drives FOMO amongst investors — literally, a fear or missing out (on your deal).
FOMO is not something you can fake but it is something you can manufacture. By running a high-velocity fundraising process, you are ensuring that investors will perceive a credible chance that they will miss out on your deal if they don’t pay attention. This happens for two reasons:
The numbers game — If your pipeline is large enough and you’re running an effective process, then you should get a term sheet in a number of weeks. Investors understand this, along with the implication that if they don’t lean in then they likely will miss out on your company.
Investors talk — The VC community is small and investors really do talk to each other. They ask each other in casual conversation about companies they’ve met recently and make suggestions about companies they’ve heard are fundraising. If you’re speaking with dozens of investors and your name keeps coming up, the perceived urgency of your deal (and the FOMO around it) will be amplified.
The Basics of High-Velocity Fundraising
Running a high-velocity fundraising process requires four things:
Preparation — You must have a fully-researched pipeline of qualified target investors before you start. If you don’t have a sufficiently sized list of target investors with introductions lined up beforehand, you will not be able to sustain the pace of meetings necessary for this to work.
Discipline — With so many variables involved, it’s easy to get pulled in different directions. You’ll naturally get excited when an investor leans in (particularly one you think highly of) and discouraged each time you get rejected. Some investors will want to go faster while others will try to slow you down. Maintaining your discipline throughout the process and forcing investors to stay on your schedule is key to being successful at high-velocity fundraising.
Endurance — High-velocity fundraising is physically and mentally exhausting. If you’re doing it right, you’re taking 5 or more meetings every single day for three weeks or more. It’s important that you’re well-rested and mentally prepared for a month (or more) of long, intense days.
Support System — Your trusted network of friends, colleagues, advisors and investors. Your professional network (your pit crew) will help you navigate the rollercoaster of feedback as you go through your fundraise, while your personal support system (friends and loved ones) will help you keep going when things get tough (and they will).
The Schedule is Key
After preparation, the most important part of high-velocity fundraising is an effective schedule.
Your schedule must be tight enough to infuse a sense of urgency into the process but flexible enough to account for the (genuinely) busy schedules of investors. You must account for time zones and travel times (to the extent that you plan to fundraise in person), while also leaving room for the inevitable last-minute reschedulings.
Most of all, you must be confident enough in your process to both communicate the schedule in advance and stick to it once you start the ball rolling. Investors can smell a fundraising process going sideways a mile away. If they believe that your process is going off the rails, the dynamics change completely and you’re likely to lose control.
A typical schedule for a high-velocity fundraising process looks like this:
| Week 1 | Week 2 | Week 3 | Week 4 | Week 5 | Week 6 | Week 7 | Week 8 | Week 9 | Week 10 |
|---|---|---|---|---|---|---|---|---|---|
| Initial Meetings | |||||||||
| Follow-Up Meetings | |||||||||
| Term Sheets | |||||||||
| Legal Diligence and Closing | |||||||||
Broken down in detail:
Initial Meetings: 3 weeks + 1 week overflow (for late introductions, rescheduled meetings, etc.)
Follow-Up Meetings: 3 weeks, typically starting in Week 3 (though some may start as early as Week 2)
Term Sheets: For a well-run process, you can expect to receive your first term sheet between Weeks 4 and 5. Once you’ve got a term sheet in hand, you’ll typically give other investors 3 - 7 days to join the competition or bow out.
Legal Diligence and Closing: After you’ve selected your lead and signed a term sheet, you can expect 4 - 6 weeks of legal diligence and paperwork leading up to closing (though this can take longer for international companies or non-standard situations).
Does this seem short? It absolutely is.
And that’s the point.
Moreover, it’s 100% achievable. If you prepare.
When I think back to all of the companies I’ve helped raise funding, almost all of the founders who went into their process with a solid company, a thoughtful, well-prepared pitch and a fully-researched pipeline of target investors received their first term sheet in 4 - 5 weeks (4.5 weeks from meeting #1 being the average).
Others companies who took this approach reached conviction in less than a month that fundraising wasn’t going to work for them (and understood why), allowing them to shut it down and refocus their efforts.
When Does High-Velocity Fundraising Not Work?
As appealing as this model is, it’s not always possible to fundraise in this manner. High-velocity fundraising does not work when the pool of potential investors is not large enough to sustain a consistent rate of progress (lots of meetings with consistent forward progress).
For example, if you’re fundraising in an ecosystem where there simply isn’t a large enough pool of investors (which is often the case for international startups at Pre-Seed), this approach will not work. You certainly can (and should) try to shepherd investors through a structured process on your preferred timeline, but the reality is that in smaller ecosystems the investors know that they’re in control of the schedule.
This approach also does not work in cases where the business and/or fundraising target does not match the thesis of a large number of investors. This includes companies that are inherently capital intensive (i.e. companies that need to raise larger amounts at each round than a “typical” startup), companies that operate in unusual or unpopular verticals, and many later-stage companies.
In my experience, Pre-Seed, Seed and Series A are the best fits for high-velocity fundraising.