Scot Chisholm founded an $1+ Bn software company, Classy, a SaaS platform for 10+K Non-profit organizations. He grew the company from $0 to $1+ Bn valuation, led a 300-person team, and raised over $200 Mn from investors.
Right from Seed through Series D from Angels, Venture Capital & Private Equity. In an X (formerly Twitter) thread, he covered 7 key mistakes that he made along the way in fundraising, and how you can avoid each of them.
Here are those top 7 fundraising mistakes, and how you can avoid them:
1. Met with Investors in the Wrong Order
Never go after your top prospects first.
This is when you're least practised & least confident. Instead:
Rank prospects from most interesting to least interesting (use this template to better organize the investors.)
Reach out to the LEAST interesting first, and work your way up
Use early feedback to strengthen your pitch with each new meeting.
2. Focused My Pitch on the Wrong Things (by stage)
Investors look for very specific criteria at each fundraising stage.
So you need to know what they're looking for and tailor the pitch:
Pre-seed/Seed: Market & Team
Series A: Product/Market Fit (preferably break even)
Series B: Repeatable Sales Process (GTM Strategy)
Series C: Command over Unit Economics
Series D: Profitability (or path to Profitability)
Note: the market continues to be important at every stage
3. Didn't Present the Market (TAM) Well
Investors don't need every little detail about your market.
They're more interested in HOW you will attack the market (GTM Strategy).
For market size:
Show the initial market like an archery target (to start with a focus on SOM)
Middle is where you're focused today (or SAM)
Each outer ring is a future market (TAM)
Now show how you'll move from ring to ring with the same core product
For competition: Focus almost entirely on your "unfair advantage."
4, Didn't Time the Raise Correctly
It would be best if you raise funding when your momentum is at a "local maximum," which is right AFTER you've crossed a major milestone, or had a breakthrough.
This could be a big product launch, landing a whale (large accounts), hitting profitability (or breakeven), etc.
This becomes the "why now" section of your pitch.
You want the new funding to build upon this milestone & accelerate things.
5. Chased Valuation
I've been guilty of focusing too much on valuation & not enough on other terms.
It even resulted in a bad-fit investor who almost drove us into bankruptcy!
Instead do the following:
Be willing to accept a slightly lower valuation if other terms are great
Don't let them prop up your valuation by increasing the liquidation preference
Keep it at 1X Non-participating
6. Didn't Negotiate the Term Sheet Well Enough
Getting a term sheet is exciting!
But a lot of times there are key terms or details left out ...
Leaving too many important items open for negotiation during due diligence.
Make sure all key terms are covered (board composition, liquidation preference, etc.)
Don't sign anything unclear, or if the investor marks something "TBD" (I've seen this multiple times.)
7. Wasn't Ready for Due-Diligence
Your most vulnerable moment during any fundraise is after signing the term sheet.
Why? Because now you're locked in, and the investor gets to pick your business apart for the next 30-90 days!
If you're not ready, they could pull out of the deal or re-negotiate terms.
So you need to have your house in order: 3-5-year financial model, metrics per customer, cap table, legal docs, etc. [Need help in these, click here.]
If you're prepped, you'll close the rounds within 30 days!