Fundraising Tips #1: Essential Lessons for Startup Founders

Sasha Orloff

As a startup founder, we know fundraising can be tough— but it doesn't have to be.

We've teamed up with our friends at Mercury to bring you an exclusive three-part series exploring the costly mistakes made in fundraising journeys as told by previous founders.

In Part 1 of this three-part series, we dive into the story of John— a successful startup founder who had it all: money, business prospects, and a future full of possibilities.

Then he hit an unexpected snag.

Despite all his hard work and intentions, resources ran dry, and he was forced to make difficult decisions about who would remain part of their team.

Now John wishes he could turn back time and do things differently. Thankfully for other founders on their own fundraising journeys, John has learned lessons from his experience that may help them avoid making costly missteps along the way.

Here’s what John wished he’d done differently.

Don’t let fundraising dictate all your business decisions.

John's team was determined to succeed, so they conducted extensive experiments and optimizations - even though their initial customer feedback wasn't exactly enthusiastic. This was done mainly to look good for investors, not to serve their business best.

“We didn't kill off the experiments, because they were generating revenue, and losing that revenue looks bad on a fundraising level,” he says.

After realizing that their strategy for fundraising was unsustainable, John and his co-founders made the difficult decision to part ways with half of their team. Though it may have been a struggle at first, this ultimately allowed them to make decisions independently without worrying about optimizing returns for external parties— something they knew would be best long term.

So, with boldness in mind and an eye on success ahead, the group moved forward into uncharted territory – but ready as ever.

Don’t fear dilution 

While it may have been tempting for John to minimize dilution when raising funds, this strategy proved short-sighted in the end as he needed more real support from smaller investors who owned less than 10% of his business. In hindsight?

"That 20% hit would've been worth its weight in gold for an experienced investor to ‘partner with us for a five or ten-year horizon’ rather than just another quick flip opportunity."

Value your company for the right time horizon.

John recognizes the challenge of finding a balance between immediate and long-term goals. However, he realized that for a venture to be successful, you need to essentially describe what you're building for the next 6 to 12 months in a concrete and valuable way that people will pay you money for. His advice?

"For any valuation you're raising now, price yourself so you know there is potential for doubling to tripling investor returns over the next year, plus make sure your current valuation comes in at half of the projected value 12 months from now -  otherwise the math just won't work out."

Stay tuned to Part Two of this series as we explore the real-life stories of other startups—their highs, lows, and everything in between.

Got questions about fundraising for your startup? We want to hear from you.

Share your stories and ask us your toughest questions.

Reach out, and let's start the conversation.

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Sasha Orloff
Cofounder & CEO @ Puzzle

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