O' Lucky Day in the Race for First Round VC Funding
Gregory Alan Bolcer stashed this in Venture Capital
Having been through several VC fundraising cycles for the last three companies I've worked at, I thought I would summarize my theory of raising venture capital.
Raising VC for a startup is like a mechanical horse race. You have three horses and three bets, win, place and show.
Each one at any given time could be out ahead (or fall behind), but the goal is to have them all win, place, and show at the same time your first institutional round closes. Those horses are: Product, Customer, and Financing. If you spend too much time on Customers, your financing and product will fall behind; spending too much time on Financing, and you lose touch with customers and your product direction. Spend too much time on your product, your customers might not want exactly what you are building and you won't have the relationships in place to close your financing round when really need it. Successful rounds happen when progress on all three of those fronts are generally moving forward and on the same pace and place in the race.
There is a fourth horse, too. It's called failure. It's constantly chasing all the others such that if it catches any of the other three, your chances of successfully raising a round are complete shot. You are betting against it. If it takes any one of your three bets, then chances are your company won't get VC funding. If you are lucky, it'll get thrown back into the angel/superangel/seed world. If you're unlucky, you can spend a lot of time and fortune trying to regain your momentum.
One other complication. The track the horses are running on isn't a normal mechanical track. All the horses are actually running on a treadmill going full speed and tilted against you. Running at anything less than full speed, and you lose momentum and progress. This is called a red queen race after Alice in Wonderland--you have to have all three of your horses running fast enough just to keep in place. (In academia, this is also called the doctorate paradox, where every moment you spend writing your dissertation is a moment you are falling behind in doing cutting edge resarch, but that's a story for another post).
“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else — if you run very fast for a long time, as we’ve been doing.”
“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Therein lies the trick. When you see the home stretch, you have to get all your horses in a row. Drafting is allowed and encouraged, and those final few weeks or months need to be running on all fronts at least twice as fast. When one of your three horses stalls--and they always do--it's the momentum of all three that will get you over that first finish line.