The market is frothy.

You have FOMO about raising money because everyone is doing it.

What should you do?

My thoughts below:
There are three things you should think about.

1 - do you already have the main investor for your stage? (more below)
2 - do you need the money?
3 - are other investors coming at you inbound?
First, figure out if you have the main investor for your stage.

If you don't have your main investor, you need one so go find her.

If you need the money, go raise!
If you don't need the cash, already have your main investor, and don't have any inbound investor pings, don't raise now. You are far better off using your time to build more and raise at a higher value.
This brings us to the interesting case. You have a main investor, you don't need the money, but you are getting a lot of inbound interest. If you are in that situation, read on.
Investors can bring two different values to a company— cash and help.

If you have already taken care of help by finding a solid main investor for your stage (seed or venture), all you need is cash to grow.
My opinion is that you should get cash with the least amount of work, so you can stay focused on the business.

Two big changes to fundraising in the last few years have a significant implication on what founders do for cash.
First, there is 10–100x more capital in the market.

Second, although SAFE notes began for seed investing, they are now also an extremely easy way to take new cash at any point.

So what is a founder to do?
What I hear a lot of investors tell founders is — ‘Stay focused. Raise a priced round when it’s time to raise a round, run a process, don’t do one-offs.’

I think this advice is often wrong.
As any SaaS founder can tell you, the easiest sale is an inbound inquiry. The buyer has strong intent, has researched you, and is ready to buy. The same is true in modern fundraising.
The most valuable asset to a founder is time. Historically, fundraising after seed stage was done in priced rounds, and when the process of raising was happening, the founder/CEO spends almost all of her time raising it.
That is extremely disruptive to the business, and results in yet more preferred preferences stacked on your current ones.

My advice is to always keep your door open. If an investor is credible, give them thirty minutes.
If the amount they want to invest is meaningful (extends your runway 12 months) or the investor has a brand or connections that may be useful, take the money.
Be very consistent on your process. First, share the latest KPIs and financials and do up to one hour more of Q&A, but state that you are not willing to do any formal due diligence. If they want to do more, they can wait until you run the process for the next priced round.
Second, do these inbound financings on SAFE notes at 20% discount to next round and no cap.
From the investor standpoint, for companies doing well, waiting until the next priced round to participate is risky, because modern lead investors have an enormous amount of cash and want to buy every share for themselves. So a good chunk of your inbound interest should convert.
Companies like Lambda, Outschool, and GetSetup have executed this strategy very well in many transactions.

I call this approach Continuous Inbound Fundraising.
What does this mean for you, the founder? First, you are going to do fewer priced rounds and accumulate fewer preferred share preferences.
Second, you are going to be diluted less if you use that SAFE cash to grow the business before the next priced round. This form of SAFE is a bet by new investors that you are going to continue your momentum and is basically a 0 cost loan to make it happen.
Third, the best time to raise is when the business has momentum and investors are knocking on your door. Continuous fundraising allows you to capitalize on momentum without getting distracted and to spend less time fundraising overall.
I hope you found this helpful. If you did please follow me, @jwdanner, and please retweet this to help other founders.
This thread is loosely based on this blog post if you haven't gotten enough :)…

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More from @jwdanner

14 Oct
Every founder I know wants to speed through seed stage and get that big Series A check.

That is a huge mistake.

Here's how you can build a much bigger company by making your time in seed count:
Many many founders find good market traction with an idea. Very very few keep experimenting until they find insatiable demand and true product market fit.
The thing about startups is that their outcomes are pretty binary. Have you built something that people love or not? If you race through seed, the likelihood that you've put the time in to find the largest opportunity in the space you are exploring is very small.
Read 24 tweets
9 Oct
A lot of founders chase venture fund logos and valuations like a sport.

It's a waste of time.

Here's what you really need on your cap table:
First, if you haven't built your own startup in the same space before, you need one main seed investor who knows the space, knows early startups and helps you find product market fit (PMF).

A generalist won't give you enough guidance, so find a specialist.
Your main seed investor may or may not be your lead investor.

There are plenty of funds that can be the 'lead' but they won't give you the help you need.
Read 24 tweets
30 Sep
The current funding market is terrible for founders.

Here's why it's damaging so many startups:
1/Normal market behavior is that seed companies are pre product market fit (PMF) and Series A companies have PMF.
2/These are not normal times.

Series A valuations have skyrocketed and are largely pre-PMF now, pushed by hedge funds and other late stage investors making bets on anything with traction.
Read 24 tweets
23 Sep
Founders are their own worst enemies when trying to find product market fit (PMF).

Here are the five worst mistakes:
1/Not being clear on the metrics for PMF.

It's not rocket science but you need to be clear.
2/Focusing on more than one metric at once.

Moving metrics through experiments requires creative thinking to try new things. Trying to move two at once kills this. Take a few weeks focusing on your top priority, then focus on another even if you haven't hit your goal.
Read 9 tweets

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