I was speaking with a friend yesterday who recently signed a term sheet to raise a Series B round. While he did not hit it out of the park with the valuation, it was a nice step-up none-the-less and would provide his company with the capital to move forward and stay ahead of its competition. He and I both fully acknowledged that he could have pushed the valuation higher if he spent time with more than two venture firms, but we both agreed that the right thing to do was take the money and build the business. This was an easy decision because fundraising is a distraction and valuation isn’t everything. When you are a lean and mean startup where you are just beginning to build your management team, every second you spend fundraising means more time that you are not working on your business. I have seen too many entrepreneurs go on the VC tour, spend too much time on fundraising, and consequently miss important milestones. In the end, the extensive fundraising process ends up backfiring since the VCs get concerned about lack of progress. So the next time you are faced with the prospect of raising money painlessly and quickly, the slight discount you take on your valuation today will be well worth it in terms of what you can do to build your business and continue innovating your product or service.
Published by Ed Sim
4 comments on “Fundraising is a distraction”
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Couldn’t agree more…what are your thoughts on CEOs spending all their time in conferences? Another huge time waster imho. The temptation is huge, lots of accolades, but at the end of the day, I kind of believe CEOs need to be spending most of their time with customers and their business, and while it is important to get basic levels of mindshare, selling to individual qualified deals is more important than three conferences a week.
Alan> As usual, the devil is in the detail. There are always one or two industry conferences that are highly relevant to your company, and that you should attend. Then there are more generic ones that you attend mostly to schmooze, and I would do one per year. And yes, being in the trenches selling is what people expect from you.
Ed> So true, though it all depends on the valuation, doesn’t it ? If you are say, within 20% of your objective, and the dilution is acceptable to everybody (no anti-dilution kicking in, other terms OK,…) then yes.
I’d rather spend time arguing for a low liquidation multiple and ratchet clause than a high valuation any day.