Now I want to talk about the legal ramifications of fundraising this time of the year. (Yippee!!) This is something NOBODY talks about but will affect all entrepreneurs who are raising now.

This is a follow up to my thread:

1) In addition to this being a bad time of year to fundraise, you also have to think about all the parties who are involved in fundraises.

No one ever thinks about the lawyers. Your lawyer, your investors' lawyers, etc.
2) Let's say you slog through everything and get to a handshake with an investor. You still have to go through all the legal bits.

The term sheet & signing, etc. That takes time too.
3) Under normal circumstances, this might take a couple or a few weeks. No big deal. If you use a SAFE or a note, even faster - easier yet.
4) But most investors and startups don't have their own lawyer on payroll. Most work w a 3rd party lawyer.

Our amazing lawyer Aravinda Seshadri
(venturouscounsel.com) works w lots of startups & funds. And so do the lawyers or many of our peer investors and portfolio cos.
5) This means that these lawyers are not available at everyone's beck and call. They have to prioritize their clients. And if everyone's doing deals crammed in before the end of the year, guess what happens?
6) There are delays. There are delays on deal review for a startup's lawyer. Or for a fund's lawyer. A fund will not sign off on docs - even for their own portfolio co raising the next round - until its lawyer signs off.
7) A big mistake founders make w/ re: to this is asking existing investors to sign docs within 24 hours.

Honestly, this doesn't work. No one wants to hold up a round. But VCs have a fiduciary duty to their investors, so they are not going to sign w/ out their lawyer's approval.
8) So even if you come to a handshake agreement, the deal is not done until it's done. Especially at this time of the year. Make sure you push your deal over the finish line completely. Not just in verbal agreement or email agreement.
9) So let's say you get to a handshake agreement, you need to move QUICKLY to get everything signed. Best practices:

1) Be aggressive but polite with the investors who are investing to get a term sheet and draft docs. Even if they are very much in draft mode, that's ok.
10) 2) Follow up frequently. Time is not on your side, so you really need this train to run on time or as on time as possible.

3) Let your existing investors know you have a new round coming and to standby. Tell them time is of the essence and to be ready for a quick turnaround
11) 4) In the rare occasion a founder has given me that heads up, I've then contacted our lawyer to give them a heads up so they can prioritize us and block time accordingly.
12) 5) As soon as a solid draft is ready for a priced round, send that to your existing investors. It's ok if it will be further modified but you want them looking at this ASAP. There should be no surprises in the 11th hour.
13) If they have edits, they will get back to you in a timely way. I know sometimes lawyers like to play a game of sending final docs in the 11th hr so no one will suggest edits. The truth is it holds up $$. No one cares about *your* timeline. Ppl care about doing what's right.
14) Basically if you just follow best practices of project management 101: clear communication with all involved, timeline expectations, polite but consistent follow-up, then you will be prioritized in everyone's queue.
15) Lastly - this end of yr crunch happens to everyone:

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More from @dunkhippo33

3 Nov
I want to share publicly the advice I've been giving so many of my portfolio companies of late.

1) tl;dr only fundraise now if you are wrapping up a raise or really need a little bit of money. But NOW is really a horrible time to be raising.

>>
2) First, there's the usual issue of the end of the year. US Thanksgiving is in a couple of weeks. Major holidays are in Dec.

If you don't wrap up your raise by Thanksgiving, it's going to be tough to get things over the finish line in Dec.
3) In addition, this year is a CRAZY yr! There's just so much more going on at a macro level. There's COVID. There's the elections today (which will be a big thing on people's minds for many days or weeks)

The mindshare for your round really isn't there.
Read 10 tweets
31 Oct
Saturday thoughts on funding: Where it helps. Where it doesn't. And how it affects team, success, and PM fit.

This is just my $0.02 after looking reviewing 30k+ early stage startups personally and having led 350+ investments across 2 VC firms & as an angel.

Let's begin! >>
1) Money is great to have in building a startup (for the least dilution and pain possible) That's true and always will be true. 😆

But just like how money can't buy you happiness, it also can't buy you PM fit.
2) PM fit is the holy grail for software startups. (we're not talking biotech - if you have a cure to cancer, I guarantee you everyone wants it).

But for software startups, it's unclear if ppl want your product at your price pt.
Read 21 tweets
29 Oct
Quick thread today on the biggest hurdle after your seed raise

Read on >>
1) One of the things that throws entrepreneurs for a loop is just how quickly you need to level up on new skills that you knew nothing about before and now all of a sudden have to know.
2) In the beginning, it's learning almost *all* skills because it's just you or you and your co-founder(s).

So you have to be reasonably ok at sales / mktg / prod / engr / and get all the legal & admin stuff figured out.
Read 17 tweets
24 Oct
Don't be afraid to ask would-be investors questions. Doing an investment deal with someone is truly a partnership.

Asking qs will not only help you understand the investor and his/her values but also your likelihood of closing that investor:

Some thoughts on this >>
1) First off, my $0.02 applied to both raising for a startup as well as raising for a fund. Just my opinion though - your mileage may vary.

Most ppl go into fundraising (whether raising from a VC or from a fund investor) w the mindset of "I'm trying to pitch for money".
2) That could not be further from the truth.

Both parties hold something valuable. One side holds money. The other side holds equity (or equivalent). The cash is valuable because well cash is cash. The equity is potentially even more valuable down the road.
Read 25 tweets
22 Oct
Some random musings on startups and funding.

As an investor, it really bums me out (most of the time) when I have to pass on a company. As a human being, you want to help wonderful ppl as much as possible, esp as a former entrepreneur.

more thoughts >>
1) And the worst pass is when there literally is nothing wrong w/ the business.

You meet the team -- they're thinking about things in the seemingly right way. They have drive and hustle and have made things happen in a focused way. Etc.
2) The reality is that for every investment check I'm able to write, there are ~4 additional companies I meet who are at the same caliber.

But I can only pick 1.
Read 12 tweets
11 Oct
Since a lot of people were asking for more details, today I want to do a quick case-study on Modus and how we invest cold generally speaking (or "direct" as someone suggested I use instead)

Read on >>
1) First off - let's establish baseline. 15% of the deals we do are direct.

So, if we invested in your co & someone (ANYONE - your friend / a VC / an acc / your dog) referred you, you are marked as a referral even though we often don't even know our referrers well / if at all..
2) 1 of these 15% was Modus who closed a very successful exit last week.

Let's walk through the timeline and the interactions.
Read 12 tweets

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