By Scot Chisholm
I founded a software company and raised over $200 million from investors — seed through series D — from angels, venture capital, and private equity. So, I’ve seen a lot and made many mistakes along the way — but you don’t have to. Here are my top seven mistakes raising $200 million — and how you can avoid them.
- I met with investors in the wrong order. Never go after your top prospects first. This is when you’re least practiced and least confident. Instead, rank prospects from most interesting to least interesting.
- Reach out to the least interesting prospects first and work your way up.
- Use early feedback to strengthen your pitch with each new meeting.
- I focused my pitch on the wrong things (by stage). Investors look for very specific criteria at each fundraising stage, so you need to know what they’re looking for and tailor the pitch.
- Seed: Market and team
- Series A: Product market fit
- Series B: Repeatable sales process
- Series C: Command of unit economics
- Series D: Profitability (or path to)
Note: The market continues to be important at every stage. (See #3.)
- I didn’t present the market well. Investors don’t need every little detail about your market. They’re more interested in how you’re going to attack the market.
For market size:
- Show total addressable market like an archery target.
- The middle is where you’re focused today.
- Each outer ring is a future market.
- Now, show how you’ll move from ring to ring with the same core product.
For competition: Focus almost entirely on your “unfair advantage.”
- I didn’t time the raise correctly. You should fundraise when your momentum is at a “local maximum” — right after you’ve crossed a major milestone or had a breakthrough. This could be a big product launch, landing a whale, hitting profitability, etc.
This becomes the “why now” section of your pitch. You want the new funding to build upon this milestone and accelerate things.
- I chased the valuation. I’ve been guilty of focusing too much on valuation and not enough on other terms. It even resulted in a bad-fit investor who almost drove us into bankruptcy. Instead, do the following:
- Be willing to accept a slightly lower valuation if other terms are great.
- Don’t let them prop up your valuation by increasing the liquidation preference.
- Keep it at 1x non-participating.
- I didn’t negotiate the term sheet well enough. Getting a term sheet is exciting. However, key terms or details are often left out, leaving too many important items open for negotiation during due diligence.
- Make sure all key terms are covered (board composition, liquidation preference, etc.).
- Don’t sign anything unclear or if the investor marks something TBD. (Not a joke. I’ve seen this multiple times.)
- I wasn’t ready for due diligence. Your most vulnerable moment during a fundraiser is after signing the term sheet.
Why? Because now you’re locked in, and the investor gets to pick your business apart for the next 30–90 days.
If you’re not ready, they could pull out of the deal or renegotiate terms, so you need to have your house in order: three- to five-year financial model, metrics per customer, capitalization table, legal documents, etc. If you’re prepped, you’ll close in 30 days.
