09 Fundraising Strategies to Go the Distance

The best time to raise capital and more…

When Should You Raise a Series A?

“An attribute we love in founders is a strong sense of urgency,” says Underscore VC Partner Lily Lyman. Call it a bias for action, diving right in, ability to create momentum, or whatever you want—it means you get sh*t done.

“But as you shift from Seed to Series A, a new nuance emerges,” Lily continues. “In a Series A round, this urgency can be harmful when not paired with the right preparation.”

If you reach out to top-tier investors before you’ve thought through milestones, nailed your story, and clearly modeled funding needs, your pitch may fall short. And it’ll be hard to go back to those folks.

If you’re running out of cash, it can be tempting to rush into a fundraising process. “That’s when things can go off the rails,” says Underscore CFO/O James Orsillo. “There needs to be planning, patience, and strategy behind it.”

Raising on Promise vs. Proof

When should you raise a Series A? Consider raising a Series A round when you can show all the promise or all the proof.

Raising on promise = targeting a massive market ripe for disruption, showcasing a rockstar team, showing a path to traction, and proving you are “the one” do be doing it.

Raising on proof = reaching product-market fit, with revenue numbers and plenty of customers to prove it.

If you’re crushing revenue and landing new customers like crazy, you may be able to get away with a weaker pitch. But if you don’t yet have strong proof, you’ll need to tell a damn good story about your promise.

“Think of it like a seesaw,” says Michael Skok, Underscore VC Co-founder and Partner. “How will you get to the right balance?” If your proof is lower, you’ll want to double down on your promise, which probably means you’ll need to double down on your preparation.

Promise vs. Proof

Fundraising Self Assessment

Are you raising on promise or proof? Consider the following questions:

1. On a scale of zero to 10: How is your business performing?

Put yourself in the shoes of a top-tier investor. Think about their end goal, to deliver a return on their LP’s investment.

2. On a scale of zero to 10: How attractive are you to a top-tier investor?

As an example, Underscore rates founders on a three-point scale across key categories such as founding team, target market, and value proposition.

For our full scorecard, reach out at hello@underscore.vc.

Score Card

Now that you have your self-graded scores, think about context.

3. Why did you give yourself these ratings?

This could sound like, “Hey, we’re performing well, but we wouldn’t be attractive because we haven’t got A, B, and C.” Or, “Well, our performance isn’t as strong as we’d like, but investors would still be interested because of D, E, and F.”

4. Are your ratings in line with your Seed investor’s perspective?

If not, why?

If you’re a 10 on both scales—and your existing investors agree—congratulations. You’re likely in for a smooth ride.

But if you’re like the majority of startups, your ratings may vary. While the process you follow generally remains the same, your preparation—and the way you tell your story—may need to shift.

Video Workshop: Fundraising Strategies to Go the Distance

There are many things to consider when determining fundraising strategies for your startup, from selecting funding partners, to targeting an investment amount, timing, and terms.

The following video workshop (1 hour and 56 minutes) outlines the different considerations to think through when evaluating fundraising strategies. You’ll learn about:

  • The best time to raise capital
  • What investors really look for in a startup before they provide capital
  • Valuation…and the ability to truly evaluate
  • The most important capital you will raise

With the funding landscape changing every day, this resource is designed to educate and foster a broader conversation on the topic.


On the go? Listen to the workshop below or subscribe on your favorite podcasting app: 


How Much Funding Should You Raise?

Contributed by Michael Skok

If you were to ask how much money your startup should raise, we could give you a simple answer: raise no more than you need to reach product/market fit, for example, or enough to validate your business model. But this subject is too important for simple answers, and there are constructive tensions at play – entrepreneurs want ownership and control, while investors want a return on their capital.

Instead, let us suggest four possible answers to how much to raise:

  1. Zero
  2. No more than you need
  3. As much as you can get
  4. It doesn’t matter

The above answers are right AND wrong. There are lots of funding strategies, and each will be specific to your business. Read on to understand why, and learn about which of these might be right for you.

Zero until you’ve thought through things like:

  • How to invest it?
  • Where it will take you?
  • A vision for how it will generate a return
  • Your own ambition and risk profile
  • The expectations and obligations of investing Other People’s Money

These last couple of points are key. If you’re not ambitious and can’t tolerate risk, step back, choose a very realistic goal, accept dilution, and raise more than you need to provide yourself a cushion for all of the above unknowns. If you’re an ambitious risk-taker who can live close to the edge, minimize dilution by raising the least amount to show the huge potential of your opportunity. And once you take Other People’s Money, it can be like a drug; easy to try, tough to handle if you don’t know what to expect, and very difficult to get off if you’ve taken too much.

Startup Secret: the best time to raise capital is with all the potential or plenty of proof

Bottom line: Don’t raise money at all unless you’re ready to make the tradeoffs both personally around lifestyle & responsibility and professionally around ownership & control.

No more than you need

Smart entrepreneurs often formulate the amount they raise based on what milestones they can achieve to increase their valuation and raise no more than they need, therefore minimizing dilution. Meanwhile, investors are also looking at the risk they take at each stage based on unknowns and discount valuations accordingly. A constructive way to look at this from both viewpoints is represented below.

Using this as a basis for discussion, raise no more than you need:

  • To reduce risk and earn an increased valuation for your next fundraising round.
  • For the particular stage of your business (For example, to confirm you have established a real need for your product).
  • To reach the next critical milestones ahead of you (Such as confirming you have established an initial customer fit and use case).

We often see entrepreneurs confuse product-customer fit with product-market fit. They are very different. Even if you’ve got a few customers using your product it doesn’t mean you’ve got generalized product-market fit until you’re seeing your product meet a consistent set of customers’ needs in a repeatable manner without distracting customizations for each one.

Without this, overfunding is like overfilling an out of control car – at best you’ll burn rubber skidding around the market, and at worst you’ll spin out of control, and crash and burn with all that excess fuel. Instead, take time on both minimizing your initial product AND target market segment using the MVP and MVS (Minimum Viable Segment) frameworks.

Once you’ve hit Product-Market fit and or Company-Business Model fit, it might be time to step on the gas and raise as much as you can get.

As much as you can get to:

  • Prove repeatability and scalability in your business model.
  • Attain the unfair advantage that can be derived from becoming a market leader and write the rules for others to play by (though sizing your market opportunity correctly is key to not raising too much).
  • Ensure you have long enough cycles of action to actually build your business before having to be distracted by fundraising again (typically 18-month cycles).
  • Attract the best talent to fit your team – human capital is the most important capital you’ll raise.
  • Manage through the unexpected.
  • Exceed expectations of your team, customers, partners, and investors.

startup secret: the most important capital is human capital

Yet behind all this, there are many key judgments to be considered.

It doesn’t matter unless you:

  • Understand what you personally are uniquely qualified for.
  • Are self-aware enough to know who to invest in hiring to complement you.
  • Know if you want to be Rich or King.
  • Have a vision for your market.
  • Understand what role you want your business to play in the ecosystem/value chain.
  • Eventually replace funding with revenue, free cash flow, and profits.

Ultimately, the BEST form of funding is a customer repeatedly paying for, growing the use of, and praising your products and services as a reference. Don’t fall for a “Money Mirage.” Revenue and referrals trump dilutive funding, as long as you think through your business model.

Business Model

Nothing will provide an accurate idea of your funding needs if you don’t know your business model and your intentions in the ecosystem. Are you the scientist/inventor who will license your IP, the designer and builder of your products, or just the operator of other’s products? Or are you the supplier or supporter of them, or some combination?

These days, business models are potentially as disruptive as technology (Think Google vs. Microsoft), and as differentiating as commerce itself (think eBay vs. Amazon). Allow enough capital to both test and validate a business model as part of your journey. For example, B2C advertising, B2B SaaS, or subscription business models have great appeal but may require ~2-3x more funding to reach cash flow breakeven depending on how you design them.

Does this all matter so much?

To come back to the original constructive tension, capital planning and funding strategies are vital because planned correctly, they meet everyone’s needs to realize the full potential of your business while building great value and exceeding expectations. And the reverse is also true as shown below.

Dream big, invest your life. You only get to turn dreams into reality by funding them appropriately to make your customers successful. But remember, while investors invest real dollars (which they expect to get back with an appropriate return), you invest your life, which you can never get back. So invest wisely and use funding vectors to think at least one step ahead.

A shorter version of this article originally appeared as a blog post in the Wall Street Journal.

We’d also like to acknowledge the help and discussion with Dries Buytaert, founder of Drupal and co-founder of Acquia, who gives the entrepreneur’s perspective on this post in his own Blog here.

The Money Mirage: 3 Measures to Define Early Progress and Avoid Temptation

Contributed by Michael Skok

The early stages of a startup are critical in so many ways. So how do you check you’re on track? Sometimes entrepreneurs follow the money, choosing to measure progress as getting funded. Don’t, it might be a mirage. Instead, find a way to reduce risk and build value so the money follows you.

Start by looking at the basics, such as whether you’re getting a product to market that wins customer loyalty and starts to prove the potential for repeatability. In a world of many variables, the reality is often a balancing act. Certainly, if you’ve got investors, they may set important funding milestones. But don’t let progress toward funding tempt you toward a mirage.

Instead, I recommend three simple measures that you can define and apply for yourself.

  1. Reducing Risk
  2. Increasing Value
  3. Converging on a meaningful opportunity

The key is then to validate these externally and then always do a gut check.

Reducing Risk

Startups are risky by nature so finding ways to assess and de-risk is key. The risks to focus on are

  • Market risk
  • Team risk
  • Execution risk

Market risk

Assess whether the market is evolving according to your original vision and whether you have timed it right.

In the B2B world, specific questions here are:

  • Is the market need moving from latent to blatant?
    • That is to say, is it more or less in demand?
    • Is there more evidence and is it becoming more obvious to people each day?
  • Is the need moving from aspirational to critical?
    • That is to say, is the problem you set out to solve becoming more or less painful and with more people in need?
    • Is it becoming more of a must-have than a nice to have?
  • Is there still white space or have many competitors crowded you out?

If you’re too early, admit it and hold back. If you’re too late, recognize the cost of competing and evaluate if you’re really able to invest to win.

The external validation here is crucial. Are you continuing to push your solution and is that getting harder and harder or is it getting easier to find and engage customers. Ideally, you would get to a place that you are getting market pull (e.g. inbound inquiries). It’s an acid test of whether you’ve honed your messaging and value proposition enough to be attracting customers. Either way, at least you should have customers wanting to act as references for you and showing intent to expand their purchases.

The gut check questions here are around whether you feel you’re making progress faster than the market is evolving, or whether you feel it is slipping away from you and going toward better-funded competitors who are moving faster?

Team risk

To use a theme that would typically be contrarian to HR thinking, I think of this as a numbers game.

Quantity/Quality * Multipliers = Speed
  • Can you hire people on time? (quantity)
  • Are you able to attract enough of them to be selective? (quality)
  • When you hire people, are they multiplying your value or diluting it? (multipliers speed your progress)

Of course, the progress you want in your team is really not just a numbers game and this is a simplification that needs validation. But great hires that fit your needs and your culture will accelerate your business and you’ll know it internally and externally.

Externally, check that all stakeholders are giving you great feedback about interactions with your team. (This is also a good reason to consider outside, independent advisors & board members) And then gut check that you genuinely feel you are effectively teaming with the hires you make and seeing them make a real impact.

Execution risk

If you’ve built a great team and you’re proving you’ve got a great market to go after, the remaining risk is execution. These risks are linked of course and great teams delight in executing and holding themselves accountable for results. So the good news is that this is the simplest one to validate: Are you exceeding expectations with your stakeholders? If not, you’re not executing.

Expectations can be as important as execution.

If you’re not executing, address both the execution AND the expectations. In a startup, there’s no excuse for not being in sync about what progress looks like on your execution. Set clear measures for success at every level, make them visible and transparent and highlight progress and learning continuously.

Incidentally, these risks are also related to market risk. For example, if your market is not panning out, but your team is, then you’ll likely find a way to re-target or pivot and execute, despite challenges. It’s also why I didn’t include technology risk as one of the top three because surprisingly few of our companies ever fail for technical reasons alone. That’s because a great team will usually trump the technology challenges that arise.

Increasing Value

Ultimately, the only value that matters is the one perceived by your customers. So build ways to measure customer experience into everything you do. At the low level, that could be analytics on your product, or at a higher level, that might be things like your NPS (Net Promoter Score).

Customers are the benchmark

Agree with your customers what their measures for success with your product or service are and validate and benchmark continuously. With early customers, this can be like a partnership, but ultimately you’ve got to be delivering more gain to your customers than the pain they have to adopt. If your gain/pain ratio is improving for your customers, you’re making progress.

Repeatability at reducing cost

There are many other ways you may assess your progress. My favorite in the early days as an entrepreneur was simply to check whether I could sell the same product repeatedly without major modification to the same segment of customers and make them reference each other so that our sales cycles decreased. (In today’s lingo that might be: Is your MVP working repeatedly in your Minimum Viable Segment and causing your cost of customer acquisition to reduce?)

Gut check. Make sure you know what it’s taking to deliver this value. If it’s killing you early on, it’s going to kill you dead at scale. If it’s getting easier, you’re making progress. Ultimately you want to start measuring this against costs and see if you’re on a productive path to cost-effectively acquire and serve customers.

Converging on a Meaningful Opportunity

Arguably this is the most important vector, and the hardest to assess. If you’re reducing risk and increasing value in your venture, you’re on track. But then the key question is where is that track taking you?

Don’t confuse activity with impact.

If your results are not converging on a large market opportunity where you can have the impact you want then face facts and course correct.

A degree off-course becomes a mile fast in a startup.

Be honest with yourself and don’t let your conviction about something box you into a corner. If you are so convinced of your course that you just simply focus on reducing risk and fail to find “pull’ from the market, you’re unlikely to be increasing value, and you may expend your resources, leaving you in a corner with nowhere to go. This is why great entrepreneurs prove their worth every day by continuing to take enough risk to invest in breakthroughs that dramatically increase value and open up large opportunities rather than marginally improving outcomes and finding themselves stuck in a corner.

Corners are tough places to course correct!

Instead, look for every incremental step, or test, or investment you make to yield some proof of how you’re increasingly delivering value for your customers.

Try to balance persistence with perspective.

The challenge many entrepreneurs face is to balance the persistence it takes to execute with the perspective it requires to ensure you’re converging on a valuable opportunity. Find ways to listen proactively and check that you’re at least getting early validation; that you will be able to address the market in a unique and defensible way; and that you can envision a path to a business with leverage and ultimately a profitable business model. Otherwise, this may not be a track you want to be on.

Now here’s the hard part. This can rarely be assessed by anyone other than the entrepreneurs and founders with the original vision – because it requires insight from all the progress data. And it may require bold decisions like increasing risk again to find new value on a new track. It’s why, as investors, we look for and back great entrepreneurs first and foremost.

Per the framework above, our role is not to reinforce assumptions that may come from an initial investment thesis but remain open to learning ourselves and support tough decisions around change as needed to enable entrepreneurs to find the larger opportunity. Otherwise, we risk stultifying the entrepreneurial instinct.

Investor trap

One of the classic mistakes I see entrepreneurs make is that they become obsessed with hitting certain investor metrics or funding milestones, believing that’s the key to success because it’s enabling them to secure the next round of funding. It might be and certainly, funding is vital. But this can also lead to myopic thinking.

So while an obviously visible measure of progress is whether you increase your financing valuation, don’t breathe your own exhaust. A high valuation may be impressive, but until you have predictable metrics, it’s likely subjective and also sets high expectations.

Don’t confuse financings and valuation growth with business growth.

Early private company valuations are rarely a real measure of success because they often rely so much on future potential. So be careful what you ask for and again check your gut. Do you really feel you have grown into these britches or will they leave your trousers around your ankles when you step onto the stage?

Own your own plan

Never let others define your milestones. Instead, own your own plan and commit to it and live by it. Get others to buy into it and agree on what they will commit when you achieve it. In short:

Live by the sword, die by the sword, but make your own sword.

Investors will commend you for it and you will know if you deserve to raise more money and when you do, it will be authentic, convincing and compelling enough to attract more capital.

There are many ways to check your gut here as an entrepreneur. One of the obvious questions is literally at the basic level:

 Is work getting harder and more tiring or easier and more inspiring? 

Whatever you do, don’t fool yourself. You’re investing your life. The opportunity cost is immeasurable. But if you’re having a blast and your conviction is increasing, then in the immortal words of Winston Churchill:

Never Never Never give up.

This is your life, invest it wisely.

Every business is different. Hence, this is clearly a general framework to measure your progress. Personalize it with your own measures for success, and validate them unambiguously externally. Customize it with your stakeholders so you can set and beat their expectations. Good things will happen when you do, and yes, the money will follow.

Congratulations, you’ve just avoided the temptation of a money mirage.

*This column was originally published in Forbes.

Case Study: Bootstrapping with Givology

Contributed by Alok Tayi, Ph.D. Special thanks to Coulter King and Joyce Meng of Givology for their contributions to this case study.

Givology is a student-run social enterprise that helps individuals find and fund education-related projects around the globe. Givology was launched in 2008 and founded by three University of Pennsylvania undergraduates: Joyce Meng, Jennifer Chen and Carl Mackey.

Unlike other non-profit organizations that focus on one project or geography, Givology publicizes and sponsors “grassroots education projects and student scholarships around the world.” Pursuing such an admirable goal promises to have a big impact; nearly one out of five kids of primary school age in the world are not in school. The cost of education (fees and supplies) coupled with poverty perpetuates this problem.

Givology serves as a fundraising platform and is able to make an impact through the financing of local partners. Givology finds partners that have a good track record, but are financially constrained; with the help of Givology’s fundraising, volunteers, and publicity, local partners are able to make a large impact on local communities. Thus far, they have provided over $628,846 in funding to sponsor 2,875 students and 46 partners. Additionally, Givology-funded projects operate in 26 different countries.

Interestingly, this social enterprise chose to bootstrap as its funding strategy, much like their for-profit counterparts. With a virtual office and a 100 percent volunteer workforce, Givology operates on a budget of only $400 per year – funds required to host their website. Additionally, they recently launched a book called A Guide to Giving. Within this text, they provide advice and best practices for other young social enterprises.

The Givology team has identified ten best practices for founders of a social enterprise – of them, several are directly relevant to fundraising and use of limited capital. For new social enterprises, early donors/investors are a critical source of funding. Since the process of attracting new donors is difficult, Givology found that developing strategies to maintain the enthusiasm of existing donors is key.

With those limited resources, non-profits are urged to launch their product or service quickly and cheaply – an homage to The Lean Startup methodology. The Givology team has found that it is best to match expenses with inflows by “thinking critically about return on expenses.”

Givology represents a new approach to raising funds for social enterprises with techniques new and old: one part crowdfunding, one part microfinance, one part conventional philanthropy. This focused and bootstrapped approach allows them to reinvest nearly all their resources in making a meaningful impact globally.

Case Study: RightNow

In our workshop on Funding Strategies To Go The Distance, we ask several questions for you to consider as you weigh the merits of various funding strategies. Today, we’re diving deeper into one option in particular: bootstrapping, with a great case study from RightNow technologies.

Founded by Greg Gianforte in 1997, RightNow Technologies is a software company that was acquired by Oracle for $1.5 billion in 2012. Though he eventually raised venture capital financing, Greg began with as little as $5,000 of his own money and continued to rely on personal savings, friends, and family for the next two years.

His decision to bootstrap came as no surprise to me: I have known Greg as a great entrepreneur for many years. As such, it gave me great pleasure to introduce him to a class of Northeastern University students. Ian McLarney, a student in that class, combines the highlights of that discussion with his independent research below.

As you read, ask yourself: Is the impact of bootstrapping limited to the share of equity retained by founders? What other impact is Greg’s approach to funding having?

~ Michael Skok

Contributed by Ian McLarney

RightNow Technologies

In 1997, Greg Gianforte founded RightNow Technologies with $5,000 of his own money. As opposed to raising external sources of financing, Greg continued to fund the growth of his business with family and friends’ money for the next two years until, finally, external financing was necessary. Contrary to popular opinion, Greg’s decision to bootstrap is actually representative of the strategy employed by the overwhelming majority of startups, and it was directly responsible for his company’s long-term growth.

In March 2016, the Kauffman Foundation presented its latest research on the most common sources of startup financing at SXSW in Austin, TX. Its ten-year study revealed that only 5.8% and 4.4% of startups received angel and venture capital, respectively. By comparison, 34.9%, 30.0%, and 6.3% financed their growth using bank loans, personal savings, and money from family and friends respectively. (1)

Notably, this distribution remains true for even the world’s 500 fastest-growing companies. (2) More specifically, only 7.7% and 6.5% of high-growth companies received angel and venture capital. By comparison, 51.8%, 67.2%, and 20.9% financed their growth using bank loans, personal savings, and money from family and friends respectively. (1)

In a conversation with Northeastern University students, Greg Gianforte elaborated on this topic. Greg not only acknowledged the prevalence of bootstrapping among startups; he also referred to it as the foundation of a lower-risk, cost-conscious, and customer-focused company culture.

“When you have money,” Greg began, “you’re going to spend it, and you lose spending discipline. Whether it comes from customers, venture capitalists, or a bank, any money you raise comes with strings, and the only strings that pull you forward are those attached to your customers.”

Greg called more than four hundred potential customers before officially launching RightNow Technologies. (3) Though each conversation was nuanced, he consistently asked about their pain points, and he learned how he could tailor his proposed solution to meet their needs.

Throughout his fifteen-year tenure at the helm of RightNow (Oracle acquired RightNow for $1.5 billion in 2012, including stock options), Greg championed this same customer-first approach to business, in part, through his decision to delay external financing.

“When you raise money,” Greg told the Northeastern University students, “you get a new set of masters. We were really, really focused.”

Despite his comments, Greg raised $16.4 million from Greylock Partners and Summit Partners in 1999. Admittedly, Greg said there comes a time in the life of almost every successful startup when external financing is indeed necessary. In his case, Greg said that venture capital was needed to fund his company’s expansion into Europe and the subsequent increase in his sales force.

Nevertheless, Greg reiterated time and time again that the impact of bootstrapping on his company’s culture was never lost. In fact, it had firmly instilled the respect for spending discipline that, arguably, enabled his company to survive the ensuing Internet Bubble even as his competitors folded.

As one investor pointed out, RightNow Technologies was a “good house in a bad neighborhood.”

In conclusion, bootstrapping is as much a financing strategy as it is a cultural ploy (click to tweet). Whereas the preservation of equity ownership is obvious, the tendency to increase frugality, accountability, and customer-alignment in the long-term — even as a company’s financing strategy evolves — is less so. As Greg himself said, “Culturally, bootstrapping is just the right way to go.”

Further Reading

Greg shared specific reasons for raising external financing. What else should you consider before raising external financing of your own?

Greg suggested that culture is an ongoing business priority. Indeed, every decision he made — from how and when he raised money to how he hired new employees — was representative of his cultural preferences. In his conversation with the Northeastern University students, he said that he hired on the basis of three criteria: culture-fit, talent, and experience. Why does that order matter?


(1) Harrison, J.D. “No, Entrepreneurs, Most of You Don’t Need Angel Investors or Venture Capitalists.” Washington Post. The Washington Post, 16 Mar. 2015. Web. 25 Nov. 2015.

(2) “Introducing the Inc. 5000 List of America’s Fastest Growing Companies.” Inc.com. Inc. Magazine, n.d. Web. 06 Dec. 2015.

(3) Sahlman, William A., and Dan Heath. “RightNow Technologies.” (2004): 1-26. Harvard Business School, 18 Nov. 2004. Web. 25 Nov. 2015.

Case Study: Endeca


Endeca was acquired by Oracle in 2011 for $1.1 billion. In the above presentation, Endeca Founder Steve Papa discusses his funding strategy that helped make the company a success. Steve also shares key lessons learned, such as the significance of macroeconomics and how determining your funding strategies starts long before you are actually pitching to investors.