Late-Stage Fundraising: A Founder's Preparation Guide

Planning for Future Funding Rounds is Crucial for Startups

While securing a substantial $250 million Series D investment might appear distant for founders initially seeking $1 million in seed funding, it shouldn't be disregarded. Several founders and venture capitalists emphasize the importance of outlining a strategy for later-stage fundraising from the very beginning.

Start Considering Later Rounds Early

Sadi Khan, co-founder and CEO of Aven, stated during TechCrunch Disrupt that startup founders should begin contemplating their subsequent funding rounds even before securing their initial financing. This proactive approach enables founders to accurately assess the capital required throughout their startup’s growth trajectory.

“As a capital-intensive company providing asset-backed credit cards, we recognized the need for significant capital to scale and expand,” Khan explained. “From the outset, we prioritized cultivating a robust pipeline of investors for long-term collaboration.”

Building Investor Relationships

Understanding capital needs allows founders to concentrate on identifying suitable investors for early-stage rounds while simultaneously fostering relationships with potential later-stage investors.

Lila Preston, head of growth equity at Generation Investment Management, recommends initiating these relationships at least two years prior to needing the capital.

Benefits of Early Engagement

Early engagement provides investors with ample time to understand the business and its operating market. It also offers them insight into the company’s developmental progress.

Preston highlighted that some later-stage investors, such as Generation Investment Management, can provide valuable support even before making an investment, should they perceive a promising concept.

“We aim to have completed our due diligence by the time we engage, even at Series A or B, ensuring a productive conversation,” Preston said. “Being able to clearly define milestones and success metrics allows entrepreneurs to demonstrate their achievements.”

The Speed of Later-Stage Rounds

Zeya Yang, a partner at IVP, concurred, noting that later-stage funding rounds are closing more rapidly than ever. Providing investors with advance knowledge of your company benefits both parties, Yang added.

“Establishing connections with potential investors earlier than anticipated is highly advantageous,” Yang stated. “When fundraising, you’re engaging with individuals you already know and who have some familiarity with your business.”

Yang further explained that early-stage companies don’t need to disclose all financial details to later-stage investors initially. Sharing the company’s general direction and overarching vision is sufficient.

Leveraging Your Existing Cap Table

Khan suggested that startups seeking late-stage investors should first explore their existing cap table. Current investors can facilitate introductions to other VCs – his early investors connected him with Khosla Ventures, who led Aven’s Series E round – who would be a good fit or have a positive track record with investors on the cap table.

“Throughout each fundraising phase, we consistently considered potential future investors,” Khan said. “We actively built relationships with investors focused on subsequent rounds, sometimes even accepting a small investment to establish a connection.”