A lot of founders have been trying to get investors to preempt their rounds. They aren’t officially raising, they’re “heads down building” — but they’re opportunistically taking meetings. Then, in the meeting, they throw out impressive numbers, but it’s often an unstructured conversation, and the founders aren’t following up with a concrete plan or ask.
In other words, founders are opportunistically taking meetings hoping to be preempted. But it doesn’t work the way they expect it to.
This approach may work at the pre-seed or seed rounds, but for the most part, preemptive rounds aren’t happening after the Series A. The best way to know you’re being preempted? There’s a term sheet in your inbox. Short of that, you really are being asked to run a fundraising process with a single bidder. Not surprisingly, founders are getting frustrated after having initially promising conversations but then not seeing term sheets materialize.
So why are founders doing this? It seems like it’s largely a carryover from 2020/2021.
We were living in a very bizarre fundraising world in 2020 and 2021: with interest rates hovering around zero, it was raining free money from the government. The IPO market was hot, and stocks were ripping. It was hard to distinguish strong fundamentals from zero-interest rate (ZIRP) phenomena.
This energy ricocheted through the private markets too. Fundraising velocity was incredible, with rounds often coming together within days or even hours of initial interest. As a result, startup founders didn’t want to proactively say they were fundraising, because all the best companies were getting preempted. It stood to reason that if you had a deck or other materials ready, nobody was preempting your round — a polished deck was “low status” and a bad signal.
Things changed in 2022/2023 when the bottom fell out. It didn’t really matter what playbook you used — deals went from getting done overnight to not getting done at all.
The venture capital market today is back to being robust — deals are certainly getting done — but outside of a few pockets, the fundraising dynamics are still quite different from the dynamics in 2020/2021.
The problem is that many founders are still running the “not-raising-raise” playbook as the default, and aren’t getting the outcomes they want. The founders who are seeing the most success in fundraising are the ones who have rediscovered the lost art of traditional venture capital pitching — in other words, the same strategy that worked up until things got crazy in 2020.
And if you were getting preempted, you were probably raising an outsized amount of money at a high price relative to your traction — after all, if you didn’t need money, an investor was going to have to offer you both a lot of cash and a high valuation to get you to take it.
The best way to know you’re being preempted? There’s a term sheet in your inbox.
The biggest risk in 2020/2021 was either scaring investors off by initiating conversations, or throwing out numbers that were too small and leaving a lot of money on the table. This led to the popularity of the “not-raising-raise” playbook.
Before 2020, fundraising worked very differently: While the seed round might be sold on story, subsequent rounds were about traction. Most fundraises were structured, intentional processes, and you waited until you were nailing your numbers to kick it off. You built a polished deck and practiced the pitch until you had it down pat, and you pitched your top 5-10 firms.
When investors asked how much you were raising, you started with the smaller end of the round size that you had in mind so that you could rope in multiple investors and leave room for them to bid each other up. A reasonable target number ensured you’d get the round done, while still giving you 2-3 years of runway.
The founders who have gone back to this old model — a structured, deliberate process — are getting multiple term sheets from top firms, and they’re seeing valuations pushed higher as multiple bidders fight to win.
But for every one of those founders, there are a dozen more who are seeing timelines drag out as they try to entice investors into a preemptive term sheet that may never come. The unfortunate thing here is that many of them have very strong fundamentals and would have had a slam-dunk fundraising process — if only they’d run one.
