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I Have 2x More Revenue Than Them! Why Can't I Close My Round?

By Micah Rosenbloom, Managing Partner

This refrain is common among companies in our portfolio and throughout the VC-startup ecosystem. It often feels like the land of the haves and have-nots. For some, term sheets seem to fall from the sky like Manna from heaven, while for others, it’s a drought.

This is true for all kinds of companies — seed to growth, consumer to B2B. It’s more pronounced among B2B SaaS companies because metrics like ARR and ACV are easily comparable. This inevitably leads to a fair bit of competition between seemingly similar companies.

Founders need to remember that the venture market is highly irrational, unlike the more mature parts of the stock market. There is a huge amount of subjectivity. What constitutes a “good” company from a not-so-good company is not apparent at the outset and six months of metrics are hardly definitive. Thus, investor idiosyncrasies and groupthink are hugely impactful in the fundraising process.

Nonetheless, it may be helpful to deconstruct the reasons why some rounds are easier to close than others, even if one’s metrics are presumably similar or better than a competitor or peer company.

Remember that all financings are hard.

The press makes fundraising look easier than it is. You see a press release with a lot of great investor names and think, geez, “they had it easy,” but you don’t see the 20–30+ investor meetings that ended with a “no” or unreturned emails. This is true across seed to growth, no matter the metrics. Most of our companies end up with 1–2 solid term sheets not 5–10 as it may seem. So take solace, it’s almost always hard!

Hot and cold themes matter

Clean-tech. Daily deals. 3-D Printers. Meal kit delivery. Adtech. Ecommerce. These are all categories that were once hot and have cooled dramatically. But that doesn’t mean that great companies won’t get started in these categories. Likely it will be just the opposite.

However, if you are building a company in a cold category you need to sell why you’re different and should not be bucketed with the failed or struggling companies in your industry. Make sure that you know the history of your space and can tell a compelling story about what you’ve learned from it and how you’ll avoid pitfalls that crushed your peers.

I made the mistake of underrating an opportunity in a cooling space that I have invested in previously. I knew that this kind of venture could grow quickly but also that the operations and margins were challenging. The newco had made a seemingly small, but massively important change to their supply chain that put them ahead of their peers. I failed to appreciate the magnitude of the change and I certainly regret not investing.

Pitch to prepared minds

You and your investor have to have chemistry and a mutual interest in the topic. This is often why it takes dozens of meetings before finding the match. Investors need to really feel the pain that you’re trying to solve. Perhaps it’s an experience they faced at a company they worked at, or better yet, a personal problem that a company’s solution is positioned to solve.

You never know who’s been thinking about a particular problem. I’ve spent my career focused on health-tech, software, and the food industry. Oddly enough, I’m more negatively biased towards these areas because I’ve seen how hard it can be to build companies in them. I feel the truth in the old refrain, “I’ve seen where the bodies are buried.”

Often, I’ve invested in companies because they solved a problem that I encountered during one of these professional experiences not directly related to their industry. That would have been extremely hard for the prospective entrepreneur to predict from my bio and helps explain why it can be so hard to find a good match.

Storytelling, panache and the X-Factor

There’s no substitute for being a good story-teller. Often the reason one company raises capital more easily than another in the same general category, with the same general metrics, is that the founder is just a more compelling storyteller.

This can be learned to a degree — you can hone your pitch, design a sterling deck, rehearse a killer demo, secure an impressive intro. The best founders weave in anecdotes and personal reasons for starting their business. A little panache coupled with a deep knowledge of your domain can go a long way. If you’re not naturally charismatic, look for a co-founder who is, I can’t think of another intangible that does more to motivate investors.

Frustrating as it may be, fundraising is more art than science. In the end, fundraising is no different than another function of a company. It’s a bit of product, marketing, analytics, hustle and a good old-fashioned narrative.

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