A Founder's Guide To Navigating A Difficult Fundraise
Midjourney / Prompt: An adventuring sailor on a stormy ocean, enduring while maintaining a calm demeanor
If you are a founder raising money for your startup right now, you know it’s a challenging fundraising environment. Even in a bull market, raising money can be a bruising experience, but it’s made far worse during a downturn. Fortunately, suffering through the financing process is optional. This is a guide for you, the fundraising founder, on how to get through a difficult fundraise. It’s split across three sections: taking care of yourself, working with investors, and leading the team. My hope is that this guide helps make your fundraise more likely to succeed while staying healthy throughout the process.
Let’s dive in.
Key Points
Expect yourself to feel many intense emotions during the process - it’s all normal
Work skillfully with your thoughts and feelings in order to stay grounded and confident
Follow simple practices to stay healthy, including proper sleep, diet, social connection, and gratitude
Expect the fundraising process to take a long time
Be relentless and create clarity with investors, but have a Plan B
Instead of taking rejections personally, find the learnings
Enforce healthy emotional boundaries with your team
Set your team up for success through delegation and clear two-way communication
Taking Care Of Yourself
Assuming your company is actually venture fundable, then the number one constraint for a successful raise is your emotional battery. If you don’t take good care of it, you will end up burning out early and doom the raise. Here are a few practices to keep your battery full.
Don’t let rejection write your story
Even if your business is rock solid, you will get dozens or even hundreds of rejections. And often when an investor rejects your startup, it feels like a punch to the gut. Maybe you start to question yourself and doubt starts to overtake you. Maybe your internal narrative starts to become “I’m not good enough.”
Make no mistake, rejection is painful. In fact, it lights up the same brain regions that become active during physical pain. As social mammals, we are wired for connection, so anything that gets in the way of that represents a threat. During a tough fundraise, it’s a certainty you will experience this. The question is how well you handle it.
Let’s look at two common failure modes: Hardening Up and Believing The Story
Hardening Up: this is where you take on a “fuck you” attitude as a way to protect yourself. But while this might bring temporary relief, it also reduces the chances of connecting with investors. Believe it or not, investors want to connect with the founders they invest in! They invest in people, not just businesses. So while this armor feels good for the ego, it lessens the chances of success.
Believing the Story: this is where you turn rejection into a story about your self-worth. In essence, you start to believe that the reason you got rejected is because you are inadequate. Consequently, you begin to doubt your abilities, seek validation, and sap yourself of conviction, which leads to a much weaker pitch.
These failure modes are cases of our fight-flight-freeze response in action. So what’s a founder to do? Here is a set of questions you can practice that will shift you out of fear and into growth:
What am I feeling right now?
Hurt? Misunderstood? Unworthy? Angry? Worried? Try to go beyond generic labels like “stressed” and get specific.
Can I allow myself to feel these emotions? Can I bring compassion to myself for feeling this way?
Can I notice and allow the physical sensations that are present?
What am I believing about myself right now?
About yourself? About the other person? About the situation?
What part of my identity feels under threat in that belief?
What happens when I let go of that belief?
What can I learn from this experience?
What can I improve in my approach? What’s the opportunity for me here?
When you practice these questions consistently, you very quickly regulate yourself and enter into a state of curiosity. From that place, you can get right back on the horse and hopefully get some valuable lessons in the process.
Side note: if all this makes sense on an intellectual level, but not on an emotional one, it may be worth doing deeper work on this area, especially with the help of a coach.
Prepare for negative feelings ahead of time
Avoiding pain during the fundraising process is nearly impossible. Instead of hoping it doesn't happen, it's wiser to prepare yourself for it. The thing to understand about painful feelings is that they pass through the emotional system on their own when we fully welcome them. It’s resistance and avoidance that causes feelings to get stuck, resulting in suffering. One way to address this is to take a page out of the Stoic playbook and practice negative visualization.
Imagine exactly what it feels like to receive multiple rejections. Picture the scenario of your fundraise failing and the company running out of money. Allow yourself to notice whatever emotions arise and allow them to move through your body, without resistance. You can even enjoy them! Whether it’s sadness, anger, or fear, practicing the art of welcoming any emotion means that you will be more prepared for whatever happens and will be less likely to be knocked off balance.
You might be thinking, "Doesn't picturing failure make it more likely to happen?" The point isn't to assume failure will happen, but rather to train yourself to be comfortable with your feelings in a worst-case scenario. Ultimately, all fear is a fear of feeling something. By preparing yourself for rejection ahead of time, you know you can handle whatever emotions come up. This gives you the freedom to move forward with confidence.
Maintain a gratitude practice for yourself
Yes, it's a cliché, but for a good reason. Focusing your attention intentionally on the things you are grateful for can increase your energy, build resilience, and create more enjoyment. I suggest directing gratitude toward yourself specifically. In my experience, the fundraising process can take a significant toll on a founder's sense of self-worth and capabilities. Therefore, it's critical to approach oneself with goodwill and appreciation.
An easy way to do this is to close your eyes, turn your attention inward, and use the phrase "I am grateful for my <personal quality>." Try to focus on innate strengths and traits like determination, empathy, or intelligence, rather than actions you do, such as "answering emails quickly" or "making really nice slides." You can also focus your gratitude on specific qualities you're exhibiting in the fundraising process, like connection or vision.
If you want to make it real simple, focus on your own inherent goodness as a human. One who is, at their core, deserving of love, compassion, and respect. But don’t just treat this like a mental exercise. Allow your whole body to take in the gratitude. Let it really sink into your cells and absorb it. A body-centered approach makes gratitude move far beyond nice words and into a meaningfully felt experience.
Limit social media use
The quickest way to ruin your day is to scroll Twitter and read about the latest financing round of a company that’s making AI-powered therapy for dogs while you just received your 3rd rejection email of the week. Whatever difficulties you’re going through in the fundraise only get amplified when entering the comparison machine that is social media. There are now plenty of studies that back the notion of social media being a net negative on our mental health. So if you do insist on using social media, limit it to a small portion of your day and away from key moments, like right before the start of work or an important meeting. The only exception here is if you know how to skillfully use social platforms to support your fundraising efforts. If you’re a great storyteller who can build hype and convert that into real pitch meetings, then spending time on Twitter makes sense. The important question is whether you are using these tools wisely.
Cover the basics
No need to reinvent the wheel here. Take care of the essential wellness pillars. While each individual varies, don’t fool yourself into thinking you’re uniquely able to perform at the top of your game on just 4 hours of sleep a night eating nothing but takeout. Here are some broad stroke recommendations:
Exercise: Get at least 3 sessions of 30+ minutes of vigorous exercise each week, ideally a mix of both cardio and strength, but the most important thing is that it’s something you enjoy and can keep up with consistently
Sleep: Aim for 7-8 hours of quality sleep with a consistent bed time and wake time. Yes, this one can be tough when you’re used to long hours and a racing mind, but do what you can to take care of this. This is a great podcast on the subject by Andrew Huberman. For a list of summary points, check this out.
Diet: Should I go keto? What about intermittent fasting? How about my macros? Nutrition advice can get overly complicated very quickly and the last thing you need is one more thing to obsess over. So keep it simple - eat when you’re hungry, focus on unprocessed foods, get a decent amount of protein and fiber, and drink plenty of water.
Rest: Commit sufficient time to actively recharge. Just like athletes employ active recovery methods to support their body, it’s important to pursue activities that help you adapt to the stresses of work. Find things that you deeply enjoy. For some, that’s creative expression, for others it’s spending time in nature. Figure out what that is for you and do it regularly.
Social connections: Studies show that strong relationships are what make for a happy life. And when you’re in the middle of a tough fundraise, those relationships are essential for keeping you going. So even when you’re tired, put time on the calendar to spend time with friends, nurture your friendships, and go thank someone who’s had an impact on your life.
Support network: Even if you’re actively maintaining your social life, your non-founder friends may struggle to relate with your challenges. That’s why it’s important to maintain a support network of other founders who are currently or have recently been in the fundraising trenches. Sharing your journey and having it validated by people who understand the founder life can be deeply comforting. On the other hand, there’s something special about helping others through their own challenges. So whether it’s a formal founder peer group or just casual ties to other founders you meet along the way, putting in the effort here is well worth it.
Escape the swirl
Fundraising will no doubt build up a lot of mental and emotional swirl in your system. You will experience fear, doubt, frustration, and a whole lot more. There are basically three ways to deal with that swirl: ignore, release, or learn.
Ignoring is sometimes the only move you have. If you’re in the middle of a pitch, you don’t have time to wrestle with the internal voice that questions your every move - you just have to push it aside. But ignoring it only works for so long. Eventually, those pent up thoughts and feelings will leak out as chronic anxiety, sleeplessness, and loss of focus as you distract yourself from what’s going on internally. Eventually, you need a place to put all that stuff. You have to release it.
There are many ways to go about releasing your inner swirl. Some examples include mindfulness meditation, journaling, breathwork, venting to a friend, or even just going for a run with a focus on letting out your feelings can do wonders. What separates releasing from ignoring is a conscious awareness of your internal state and creating enough psychological distance to regain presence. Without presence, you’re just operating on autopilot.
Finally, there’s the path of learning. As much as you might want to run from the painful parts of a fundraise, you can also turn the experience into an opportunity for more self-awareness and growth. Whatever shows up for you - strengths, weaknesses, limiting beliefs, triggers, patterns, etc - is amazing fuel for your learning. Here is where working with a coach, therapist, or peer group can be remarkably valuable. These relationships help you not just cope better with the swirl, but also transform you into a more effective and dare I say, more joyful human.
Working with investors
Calibrate your expectations
As much as we’d all like to return to the market of 2021, it’s clear that conditions have shifted. Many Series A processes are turning into seed extensions and many Series B rounds are stalling or not happening at all. The bar is now much higher, with investors seeking stronger unit economics, longer due diligence processes, and a smaller pool of funding to go around. In fact, global venture capital volume dropped 53% YoY in Q1 2023.
The upshot is that you need to enter a fundraise with the proper expectations. If you thought you’d need 6 months to raise, prepare for 9-12. If runway is less than 12 months, find ways to extend that by 6+ months. Know your business inside and out so you can confidently respond when you get grilled. Anticipate long feedback cycles and more ghosting. And if you closed a round before 2022, expect to hear a lot more no’s than last time around.
Keep fundraising until money is in the bank
This one is straightforward. There are countless stories of rounds that fell apart right at the finish line. You can’t assume that a signed term sheet means you’re finished. That means keep fundraising even when you’re in due diligence and the investor is giving positive signals. You need to plan for anything to happen.
Create clarity with investors early and often
I know a founder who spent considerable effort working with an existing investor on their go-forward plan, only to later be told that they wouldn't participate in their bridge round. This came as a total shock because the same investor had expressed excitement about the business and claimed they would be "supportive" throughout the planning sessions, which the founder understandably interpreted as a funding commitment.
The truth is that many investors will waste your time if you don’t get clarity from them early on. Avoid making assumptions and get to the important questions:
How many deals did they do in the last 3 months? Where are they in their fund cycle?
How much are they interested in investing?
If they aren’t a yes, what do they need to see in order to get there?
Time is your most precious commodity and there’s no point in having conversations with an investor who is just tire kicking. And even when an investor has committed to your round, make sure to regularly check in all the way until closing to avoid any surprises at the last minute.
Finally, even when you have a clear answer from an investor, it is useful to trust but verify. If you have existing investors, ask them to backchannel in order to surface important information that might not come out in your pitch meetings.
Look for patterns in investor feedback
One of the trickiest things about investor feedback is deciding what to pay attention to and what to discard. When I was a CEO, one of my big mistakes was changing my pitch each time I received investor feedback. I’d blindly accept their thoughts as truth because I figured they’re smarter than me and must know what they’re talking about. Plus I thought that the more my pitch aligned with the feedback, the more likely we’d get funded.
Of course, if you meet with 20 different people, you will get 20 different opinions. Take each one of them seriously and you will end up with a confusing mess of a fundraising story. So instead of assuming you need to change your company strategy because a Tier 1 investor suggested it, gather up the feedback in one place and see if you notice any meaningful patterns. One data point might be noise, but five might suggest something important to investigate.
Drop blame
When things aren’t going well, it’s easy to point the finger at investors. Make no mistake, there is plenty of bad behavior out there among them (they are humans, after all). They might pretend to be founder-first in public but bully them in private. They might make commitments that they never end up fulfilling. And nearly every founder has experienced the disrespect of an investor who shows up late and is completely checked out during the meeting. So it’s no wonder when I hear founders express anger toward investors. But the problem comes when that anger turns into chronic resentment. Once it’s gotten to that point, it starts to leak out into pitch meetings and rarely turns out well. And outside of those meetings, the resentment will eat into your energy and impact your health.
Resentment comes from two places: blaming others for what you’re feeling and desiring for others to change. So dropping resentment requires a major perspective shift. First is to take responsibility for your own feelings and not put someone else in charge of them. Yes, you might feel angry and ignored. No, it is not anyone else’s problem to solve. The more you can skillfully handle those feelings, the more effective you’ll be in investor meetings. Secondly, you need to accept the people around you for who they are, without any need to fix them. This is easier said than done, of course. We all know what it’s like to think “If only this other person behaved better, I’d get my way.” But that simply amounts to wishing you had control over something that is out of your hands, which is a huge waste of energy. Instead, learn to drop the blame. One way to do this is the “Just Like Me” exercise. Visualize the investor in question and practice these phrases:
This person has opinions, perspectives, and beliefs – Just like me.
This person has vulnerabilities, anxieties, and hopes – Just like me.
This person has friends, family, and maybe even children – Just like me.
This person wants to feel competent, respected, and appreciated – Just like me.
This person wishes for happiness, peace, and joy – Just like me.
Have a Plan B
Try as you might, you might not reach your fundraising goal and this can be a huge source of grief. If you hitched the entire company’s future on a successful fundraise, then coming back empty handed will leave you flat footed. Make sure to have a Plan B in case the original plan falls through. That might be a bridge from existing investors or even exploring options outside VC like angels, syndicates, and equity crowdfunding. Or it might be the hard case of figuring out company survival without new funding.
Letting go of our original plan is not easy. We’re socialized to believe that if we simply work hard and long enough, we’ll make it to the pot of gold. But while persistence is important, you can’t let your mindset make you too rigid. That will not only lead to misery if things don’t go your way, but also lead you to switch gears too late. If you spend 3 months too long on a doomed fundraise, you might miss your chance to successfully pull off a Plan B. So ahead of time, set up what Annie Duke calls a “kill criteria” for when it’s time to change direction.
Kill criteria, generally, include both states and dates, in the form of “If I am (or am not) in a particular state at a particular date or at a particular time, then I have to quit.” Or “If I haven’t done X by Y (time), I’ll quit.” Or “If I haven’t achieved X by the time I’ve spent Y (amount in money, effort, time, or other resources), I should quit.”
Leading the team
Don't make others responsible for your feelings
The emotions involved in fundraising often become so overwhelming that we offload them onto others, whether we do so consciously or not. Imagine you are a founder who feels a jolt of fear from an investor rejection and angrily commands your team to grow revenue faster, otherwise they’ll be out of a job. Now consider you are that same founder but you take the time to let the fear settle, find something to learn in the investor feedback, and open a discussion with the team on ways to improve their sales process. In both cases you motivate the team to behave differently, but the former example shuts down any chance of learning and instead trains the team to focus on fixing your feelings rather than learning how to better achieve company goals.
Emotions contain essential data for guiding our behaviors when we slow down long enough to pay attention to them. So I’m not suggesting we hide our authentic feelings or become robots. I’m pointing to the cases where we find our feelings to be so overwhelming that we dump them onto others. It leads to a culture of fear, aggression, and avoidance rather than connection and growth. One hint that you’re making others responsible for your feelings is if you’re showing sadness, anger, or fear in order to get them to do something. It's the equivalent to a parent telling their child "If you don't change your behavior I'm going to get mad at you."
The key to working with strong emotions skillfully is self-awareness and compassion. One of my favorite tools is the practice of RAIN, which stands for Recognize, Allow, Investigate, Nurture (or Non-Identification, depending on the version). Whatever approach you take, the important thing is to learn how to self-regulate so that you don’t spill your emotions onto your team. At times, those feelings will indicate that something in the business needs to change and other times it is just noise. Learn how to see the difference in order to bring the best out of your team.
Rebalance your workload
Fundraising is a full time job and maintaining all of your existing responsibilities while pitching investors is an easy way to burn out. That means it’s essential to offload as much of your work as possible so you can focus on the raise. But while this sounds sensible to most, it’s often terrifying to founders because they have a story that everything they’re working on is mission critical. And when they believe that story, they clutch on to all of their responsibilities. To solve this, you have to look at everything you’re working on and sort them into three buckets: keep, delegate, pause.
Keep things like direct report 1:1s, leadership team meetings, recruiting, and functional areas where you’re still the only driver.
Delegate responsibilities that can go to another capable teammate. Warning: this is where you’re most likely to get tripped up. Delegating successfully requires you to let go of perfectionism and properly support your team to succeed through direction, accountability, and feedback. Here is a useful high level guide on delegation.
Pause tasks that aren’t moving the business forward in a significant way. Most founders will balk here, but with an honest look, you’ll likely find you spend significant time on getting to inbox zero, checking out competitors on social media, and micromanaging website copy. All of that is energy you can preserve for the more important tasks at hand.
Share information your team can actually use
Your team will very naturally want to know how the fundraise is going. And while transparent communication is wonderful, that doesn’t mean spilling your guts about every detail of every investor interaction you have. The rule of thumb here is to share information they can actually use. For example, if you are selling a story to investors that you expect to reach 30% month-over-month growth over the two quarters, then the team absolutely must understand that expectation. Or if the process is taking longer than you expected and you need to start cutting burn, then again, this is relevant information that the team can use to adjust spending or potentially plan for layoffs. On the other hand, the team probably doesn’t need to know that you’ve spent the last few nights sleepless because you’re beating yourself up over the way a pitch went.
The tension in all this is that you build trust when you share information, but people also get scared by things they have no control over. That’s why it’s critical to empower your team by providing context and a way forward. Don’t just say “the macro environment is getting worse”, explain what that means and how it should factor into decision making. Don’t just stop at “investors don’t seem to understand our vision”, use that as an opening to see how the team can make your story clearer. Every time you deliver information, you have an opportunity to empower the people around you.
Speak in probabilities
When leading your team during fundraising, it's crucial to be clear about the probabilities you're working with. Many founders tend to overstate investor interest and imply that a term sheet is imminent in an effort to boost morale. However, this can lead to negative consequences if the situation doesn't pan out as expected.
To avoid damaging team morale and confidence in your leadership, communicate realistically with your team about the progress of fundraising efforts. Instead of making definitive statements about receiving a term sheet soon, share your guess at the probability of success based on current circumstances.
For example, inform your team that there is a 30% or 70% chance of securing funds without presenting it as a done deal. This approach will help manage expectations while still conveying optimism and maintaining transparency throughout the process.
Help your team communicate with you
It’s natural to worry about how things back home are faring while you’re out on the road. To quell their fears, many founders check in on Slack throughout the day asking for updates to make sure all is well. Unfortunately, every time you “pull” information from your team this way, you interrupt work and create anxiety. So instead, make it easy for the team to push information that you care about. It doesn’t matter what form this takes - it can be a KPI dashboard, a weekly status email, or a daily standup. However you approach it, be clear about what information matters most and how often you’d like to get it in order to create predictability in your team communications.
On the other hand, do your teammates and loved ones a favor by letting them know that you’re entering a period of strong emotions ahead of time. This gives them context for when your moods and reactivity spring up. You can even work with them on how to best support you when those inevitable moments arrive.
You Don't Have To Do This Alone
Few aspects of the founder journey are lonelier than raising money. I hope that this guide helps you move through the process with more ease. Take the time to proactively take care of yourself. Balance your expectations about the fundraising process and create clarity wherever you can. Set your team up for success in your absence through clear, conscious communication. Do all these and you’ll have a much better time.
And you don’t have to do it alone. If you want a partner who will help you dive deeper into any of the practices found here, you can read more about my work at www.dashingleadership.com and reach out to me at brian@dashingleadership.com to explore coaching together. Good luck out there.