The Seven Deadly Sins of Fundraising in 2016

As has been widely covered in the press and the latest Q2 venture funding statistics, the financing environment for venture backed companies changed significantly at the beginning of the year. The bar to raise a successful round went way up, especially after the Series A round.  Over the last 6 months of meeting new companies and seeing portfolio companies go out to raise rounds, a common set of reasons emerged as to why companies have struggled to raise. The dynamic was markedly different from the last few years when investors were willing to look past near-term issues in order to be more competitive or for FOMO. These days, investors are taking longer to make decisions, asking more questions, and scrutinizing many fundamentals to a new degree. That said, there are still plenty of investors, like Menlo Ventures, actively looking for great companies, so the key to raising capital is avoiding “The 7 deadly sins of fundraising in 2016.”

  • Sloth: Slowdown/hiccup in growth
  • Pride: Raised or raising at too high of a valuation
  • Wrath: Forced founder/CEO transition ahead
  • Envy: Lack of leadership position
  • Greed: Raised or raising way too much capital
  • Gluttony: Too high of a burn rate
  • Lust: Pivoting/undergoing product transition

Start-ups invariably go through many issues at various times in their evolution. It’s not easy. The point is this financing environment has a lower tolerance for any of the issues described above. Certainly one of the 7 doesn’t necessarily kill you, but it can and >>1 is likely to be fatal. So your best bet is not only to avoid them in the first place, but to work through any of them before contemplating a round. Once your house is in order, it will be markedly easier to raise. This is an environment that funds strength, so make sure you go out when you can put your best foot forward.