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By Hum Capital
December 9, 2021

Right-Timing Your Fundraise


For a founder, startup fundraising often lurks like the monster in the closet. It’s one more thing on a to-do list. But without a clear sense of when to start, it’s easy to push off your fundraising. We caught up with Wavemaker Partners’ Mikal Khoso, an investor in Hum, to learn more about right-timing your fundraising as well as how you should think about it strategically.

Startup Fundraising: When are you Ready?

Mikal believes strongly that you should always be ready to fundraise. Startup fundraising is storytelling and as the founder, you must have a clear and compelling company story. Mikal notes, “As humans, we process the world through story.” The worst pitch sessions are those where the founder just spouts statistics and financials without placing them in the context of a larger story.

How detailed your story will get varies by company’s stage. An early-stage company needs to solve an important customer pain point with an innovative product in a large market. Later-stage companies need a story proving they’re the industry leaders with strong customer growth and retention and clear opportunities for continued scaling in a big market.

So as a founder you should always be ready to fundraise. But, you should actually do so when you have a specific question that the money will answer. In other words, you fundraise when there’s an unanswered question in the story’s trajectory. Startup fundraising isn’t free. Not only does it dilute your position and that of your current investors, but it demands huge amounts of time and brainspace from your management team that could be spent moving the company forward. And that’s why, although you should always be ready to fundraise, you only do it to move the company forward in a defined way that will de-risk it and answer the most urgent questions you confront.

What’s your Biggest Unanswered Question?

A founder’s response to this question illustrates the depth of their thinking about the company. A clear answer demonstrates how carefully they’ve thought about the business and its challenges and whether they truly understand what they don’t know. Because the unanswered questions are specific to your business, there is no “right” one. But they fall in general groups:

  • For fundamental technology innovations like lab-grown meat, nuclear fusion, or other deep tech projects, unanswered questions revolve around whether the technology even works.
  • For improvements on current technologies like enterprise software, there’s good background about the basic business model. The unanswered questions should focus on pain points in the current products—expense, installation complexities, industry specifics—that your product addresses.
  • For direct-to-consumer products the most common question is the degree to which your company improves on current distribution methods.
  • For almost any product or service, do customers even want what your company makes? (In VC-speak, will the dogs eat the dog food?) For later-stage companies, how can you find more customers who want your product at a profitable price point?

Start fundraising when you have clearly defined the question that the money will answer. This does two things: it extends your story—you’ll be able to say what the next chapter will be and how you’ll get there— and it clarifies your pitch to investors or lenders. “I’m looking for $25 million to test our product-market fit,” is a much more compelling statement than “A company at our stage in our vertical just raised $25 million and I want to prove I’m as good as they are.”

What to Raise? The Two Types of Capital

In our previous posts, we’ve explored debt and equity financing and their respective advantages and drawbacks. But when you’re planning to fundraise, you need to determine which capital type to focus on. To decide, go back to how you want to use the funds and what questions you’re answering. Mikal believes there’s capital for uncertainty and capital for growth. Be sure to raise the right kind!

  • Capital for Uncertainty: Will it work? Will customers buy it? Is it priced right? Does this delivery system work? These are all high-risk questions, ones that will determine whether you keep moving forward with your current plan, or pivot. Venture capital is designed to answer questions like this. It’s expensive, because you give up equity, but you receive (somewhat) patient money along with advice and connections that can help you arrive at answers or react to feedback.
  • Capital for Growth: Once you’ve figured out your technology, product/market fit, customer retention strategy, and distribution, growth capital adds fuel to the fire. If you know that $1 of investment in your sales team or production capability will yield $5 in revenue, you’ll be eager to raise money, and many investors will be eager to oblige.
    • In this situation, you need to evaluate your options. In our earlier post on flexstrapping, we describe the trade-offs of equity and debt. Debt has a couple of significant advantages in financing growth. Yes, it needs to be repaid every month, but if you’re growing 5x, that shouldn’t be a problem. Moreover, different types of debt can match your company’s needs as you grow, as we outline in this post. And finally, debt is non-dilutive! Many companies are extending venture rounds with venture debt or growth capital term loans, which help to ensure that you answer the question that kicked off the startup fundraising process and go back into the market at a higher valuation.

With startup fundraising you need to be aware of which type of capital will help you achieve your immediate goals at this point in your journey. With VC, while you give up part of your company, the money you receive allows you to run a series of experiments that answer your current questions. Once you know the product works and there’s demand at that price and you’ve figured out the distribution model, debt can provide additional capital to fuel the fire.

How to Fundraise: Fundraising Metrics & Members of the Audience

While startup fundraising is akin to storytelling, you can’t just stand up and wave your hands about your world-changing product. You need to support your story with quantified fundraising metrics. While every founder wants to use the metrics that burnish their performance, investors aren’t stupid. Monthly growth rates of 200% are exciting, but much less so when they start from a small base. So be up-front and acknowledge that if it applies to you. You’ll look trustworthy and smart, attractive characteristics in a founder! There’s nothing to be lost in being honest.

Fundraising Metrics

Choose your fundraising metrics with care. Mikal says, “Particularly with an early-stage company, I really don’t care about the company’s immediate metrics. I care about the 10-year vision and the market details—its size, its growth, and whether the solution addresses a real pain point that people will pay to resolve. Most significantly, is there a sustainable model around your solution, with a business model and customers and pricing? The metrics are just early evidence that all these things are true.”

You’ll need to present similar evidence as you begin raising your Series B and C rounds (or raising debt as you grow). At later stages, you’ll be talking to a different type of investor who will be interested in customers and continued growth. But you still have to tell a story about your vision for success in your specific market, substantiated with fundraising metrics.

Place your metric in a fuller, and honest, context. Revenue is helpful but don’t lead with it! Be sure to explain the base, the trend, the losses. We all know of business models where revenue is rising—but so are losses. If your company finds itself in that situation, be ready to explain how the new capital will help you fix the model, whether by selling in bulk, reducing post-sale customization, or switching to a subscription model.


As you consider raising debt or equity, think hard about your target audience along several dimensions:

  • Who are you talking to? If it’s a venture investor, be sure your company fits their interests. Most investors clearly describe their investment criteria on their websites or LinkedIn.
    • What level is this person at the firm? Can they write a check themselves, or are they taking an introductory meeting and will then have to convince their team?
    • The same question applies to debt lenders. If you’re talking to a more junior person, be aware you’re one level away from the decision-maker. Generally, more junior people are more risk-averse because they’ll have to convince more people of the merits of your company.
  • Understand your audience’s incentives. Lenders and investors both provide capital but their incentives differ. Investors bet on the future. If your company hits a speed bump, equity investors may put in more money. If an evergreen fund wants to back you, understand the implications of that structure rather than worrying it’s not a brand name VC. Debt providers, on the other hand, want their money back and tend to be more risk-averse in general. Because debt providers are on top of the capital stack, you can’t ignore their concerns, and at worst, they have a lot of power if you break covenants.
  • Make the best of every meeting. Even if you discover that somehow you’ve ended up presenting to a VC who specializes in a different industry, ask for a referral to another investor. VC is a network business; despite their competition, firms share leads frequently. Sometimes an investor will volunteer that you should talk to someone else, but if you ask, you’ll be sure to learn. The old adage is true: It takes a village to build a company and a village to finance it.
  • Be open about the challenges of your business. Not only will you gain insights into possible answers, you’ll also learn how the other person thinks. Founders aren’t expected to have all the answers, but they should be asking lots of questions.
  • Understand it’s a long-term relationship. This is true not only with your current fundraising round, but well into the future. The VC investor you present to today may not fund your company, but they may introduce you to someone who will, and they may fund your next one.


Startup fundraising is a critical skill for any founder. Yes, the process is exhausting. But your success depends on it. It’s your responsibility—to your other investors, to your employees, to your management team, even to the dream on which you founded the company—to run a well-considered process because that’s the only way to determine the market price of your company, even if someone approaches you with an unsolicited offer.

If you’re aware of some big questions that your company needs to answer, Hum can help you decide on the best way to do it. Contact us at Hum Capital to talk about the right time and way to handle your next fundraise.

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