The 2022 Fundraising Window is Now Closed
It’s official. The 2022 fundraising window is now closed.
No, this isn’t a commentary on the current macroeconomic climate. Nor the result of chaos in cryptoland.
Today, is the fourth Wednesday of November. The day each year when Silicon Valley VCs shutter their doors and begin their slow roll to the end of the year.
And where Silicon Valley leads, the rest of the investor world follows.
Let me explain…
Happy Thanksgiving
The end of fundraising season starts with American Thanksgiving.
As Canadians, we like our Thanksgiving. The second Monday of October, we happily get together with friends and family, eat a nice turkey dinner and then go to work the next day. It’s a perfectly enjoyable holiday.
But culturally, Thanksgiving isn’t that big of a deal for most of us. Yes, we get together with our family and friends. But it’s mostly local. Very few Canadians travel for Thanksgiving.
Thanksgiving in the US is different. The day before Thanksgiving (aka today) is one of the biggest travel days of the year in America. Nearly 5 million Americans will fly domestically for Thanksgiving and another 50 million will drive more than 50 miles to visit family. More Americans travel to visit family for Thanksgiving than during the Christmas holiday season — the inverse of Canada.
It’s a huge deal.
When I lived in the US, November schedules were built around Thanksgiving. Some years, I went to “friendsgiving” parties with 50+ people that kicked off with flag football at 9am and went late into the night. Other years, it was hoping from giant family get together to giant family get together, sometimes eating 3 or more Thanksgiving meals in one day.
The next day, is well-earned recovery. Either that, or shopping.
With US Thanksgiving falling on a Thursday, many Americans enjoy a 4-day weekend. In recent years, many companies (especially in tech) have turned that into a 5-day weekend to make travel easier on employees.
When I ran DataHero, all employees got a 5-day weekend around Thanksgiving. This allowed people to travel Tuesday night, thus avoiding the chaos of Wednesday.
Of course, any time you take 5 days off from work, there’s a bit of a “hangover”…
Fundraising Purgatory
If you work in retail, the four weeks between US Thanksgiving and Christmas is the busiest time of the year. It’s also the sprint-to-the-finish for anyone in a B2B business trying to hit Q4 numbers.
But in the land of venture capital, it’s a uniquely slow-moving period that can best be thought of as fundraising purgatory. Put bluntly, it’s where many fundraising rounds go to die.
Why? Well for starters, anyone who was actively fundraising prior to Thanksgiving that hadn’t yet received a term sheet just had their momentum interrupted by a giant speed bump.
Beyond that, most firms spend the remaining weeks of the year focused on closing out as many active deals as they can. The majority of VCs shut down between Christmas and New Years (despite popular belief, it’s the only week of the year where VCs actually disconnect). As a result, they’re working hard to minimize the number of “dangling threads” over the holidays.
This means prioritizing diligence on startups they were actively engaged with prior to Thanksgiving over taking new meetings.
We’re Still Open!
Of course, every VC will tweet until their fingers are blue that they’re still open for business following the Thanksgiving weekend.
And they are….to a point.
Despite my commentary above, many VCs will take introductory meetings and “start the ball rolling” after Thanksgiving. But they also know that unless you’re the hottest-of-hot startups, nothing’s really going to happen until the new year.
Which means they’re just gathering data.
What this Mean for Founders
For starters, the reality is that it’s nearly impossible to get from an initial meeting to a term sheet in the four weeks leading up to Christmas (even though that’s an achievable time frame during other times of the year).
For founders, you are effectively guaranteed that if you start a fundraising process after Thanksgiving, you won’t complete it by year-end. Instead, you’ll be interrupted by 1-2 weeks of vacation time at the end of December. That means any momentum you might have created will be dead. If you’re familiar with high-velocity fundraising, you should immediately recognize this as a problem.
In other words,
📣 📣 📣 If you haven’t started fundraising, don’t start your process until January 📣 📣 📣
If you were actively fundraising prior to Thanksgiving, you fall into one of four camps:
If you received a term sheet already, then you’re in great shape. In the best case, you’ll be able to close everything out and have money-in-the-bank by the end of the year. You should strive to get everything done before the holidays — as there is some risk that the round might not come together if it delays into the new year — but that risk is relatively low.
If you were already in active diligence with multiple firms prior to the Thanksgiving break (multiple meetings with each firm, deep into the data room, etc.) and feel that you are in a solid position to get to a term sheet within a week or two, you should stay the course. You likely won’t close the round before the end of the year, but you have enough time to get to a signed term sheet.
If you have not yet found meaningful traction with investors, you should strongly consider stopping fundraising, focusing on your business for the last 6 weeks of the year, and resuming fundraising in January. There’s still an outside chance you could get to a term sheet but, more likely, you’ll be better served by focusing your efforts on improving the business.
If you have identified angel investors or follow-on capital but have not yet “identified a lead,” you should consider strategies to close as many soft-circled investors as possible (such as by offering a discount), so you don’t lose momentum with them. Then, you should focusing on your business for the last 6 weeks of the year. In January, you can look at your balance sheet and decide if it makes sense to resume fundraising immediately or focus on the business for a period of time before going back to market.
What About Canada?
It’s all fine-and-dandy for us to be talking about US Thanksgiving, but what does that have to do with Canadian VCs?
Good question!
Unlike our friends to the south, Canadian investors aren’t necessarily slowing down. My calendar (and those of my colleagues) are booked solid this week and next. But we are thinking about those meetings differently.
Why?
Because as Canadian VCs, we know that any founders we meet for the first time during the period between US Thanksgiving and Christmas are unlikely to be talking to American investors.
That means it’s going to be a less competitive round, likely moving at a slower pace.
And that means that even in Canada, founders who start after American Thanksgiving are unlikely to get to a term sheet by the end of the year. Which means running into that big speed bump in December and a loss of momentum.
So what should you do?
My advice: this is a great time to reach out to a handful of VCs who you want to fundraising from in January and get on their radar. Figure out what you need to achieve in the next 6 weeks to get them excited to look at their round.
It’s a great time to make yourself a dotted line.