Not all cash is created equal

I am tired of saying no to great businesses with messed up cap tables which make it impossible for me to invest in them. Or which come to me too late. Or too early. Or which try to be clever in addressing short term cash needs and then make themselves not investable in the longer term.

I don't like passing on great businesses and great founders. It is upsetting and disheartening and disappointing. Especially when it could be avoided.

Hence this post.


1. When to think about raising money

So you have a great idea for a business. You have even launched your business and started to get some traction. And now you realise that you need to raise some external capital in order to keep going or to expand.

Time to start raising money?



Absolutely not.

Why? Because you are now raising money while quickly running out of cash. And there is nothing worse than raising money when you are desperate. Desperation is not attractive in relationships and it is not attractive in fundraising.

So when was the right time to think about and why?

When you were planning your business and its strategy. And every time since, when you review those strategic choices. Because funding is not an afterthought. It is a strategic, careful choice and one that needs to be considered right alongside your product strategy, your customer acquisition strategy and all the other aspects of your business. And it evolves over time, just like your business. Hence it needs to be reviewed every time you review your other strategic choices.

And it needs to be thought through ahead of time. A typical funding round horizon is 12-18 months. That means that you need to be thinking ahead 12 months and looking at what your business is going to need in terms of capital. That means starting to talk to specific investors, getting to know each other, gradually doing due diligence and getting ready for investment committee meetings and figuring out which KPIs you need to hit in order to get that investment approved.

It also needs to take into account three very important things:

  • What you need from your investor?

  • What are this particular investor's needs?

  • Dynamics between investors.

2. What do you want from your investor?

This may seem like an easy question but it is rarely that simple. If you simply want cash from your investor, you will be very surprised by what you get. Because even if you think you only want cash, you rarely receive only cash.

Wanted or unwanted, investors come with a range of other attributes. Some suitable for you, others not.

Some bring networks.

Others experience and industry knowledge.

Still further, others create credibility and make it easier to raise subsequent rounds.

Some like to spend money frugally, whereas others like to over-capitalise a business to speed up growth.

Some investors spend lots of time with their companies. Voulez is definitely in this category. Others have large portfolios of small investments in each and are very passive. Trying to get the latter to spend hours and hours advising you will leave you disappointed. Equally, expecting me to butt out of our portfolio companies' business is equally hopeless. Just ask our founders!

And again, what you want from an investor changes over time, as your business evolves. At first, you need some cash to get going. But you also need people that can open the right doors so you can start generating traction, right at the time when you cannot possibly afford to pay for it. So a natural way of getting that level of commitment and support is for those people to be your initial investors, as this aligns their interests with yours.

You will also be judged by the quality of those investors and the resources they bring to the business. Strong, strategic angels on the cap table are a credit to you and to your business. Their commitment to you will help a subsequent investor to commit as well.

At a later stage you want an institutional investor (or two) that helps you get ready for the scaling up. Typically this is your late seed round. Here you need someone that can make sure the checks and balances and governance are in place. Someone that has the relevant network to help build on the traction you have already started to create and for whom you are important enough to spend time on you.

It does not need to be someone that helps you exit in five years time. That will come later, so keep things in perspective. It is, however, far more important that it is someone who can open doors to other investors and make it easy for you to raise your Series A. An investor talking to another investor on your behalf is a very different conversation to the one you might have with that investor yourself. I recently watched in admiration how a colleague posted some key points about a funding round to a WhatsApp group of European VCs, only to find fifteen people within five minutes wanting to see the deck.

Your first institutional investor, your lead VC, is your champion. They should be working hard to help you get fair terms at the next round. I think of this type of an investor as the bridge between founder and investor needs.

And don't forget about cultural fit, especially with those early investors that you will be spending a lot of time with.

3. What are this particular investor's needs?

As in any lasting transaction, it has to create value for both sides. Otherwise it simply does not work. And I find that few founders think in terms of what a particular investor would need. Again, this goes beyond simple 'return on capital'.

So let me use Voulez as an example. We are a relatively small entity. Small but mighty. This means we make a small number of investments and we get very closely involved in them. We don't play the 'one unicorn out of a hundred investments' game. We want all of our companies to make it and to be successful. This means spending a lot of time on each company. And I mean A LOT OF TIME!

Why is this important for you to know?

Because it creates a natural constraint. You see, I can only sit on so many boards at a time and remain effective. Same goes for the rest of my senior team. So our investment size and approach has to take this into account. It means that we naturally focus on the late seed stage of the business where there is some traction but also where our involvement can add the most value. It naturally means that we have to lead or co-lead a round. It also means that at this stage we get a large enough piece of the company for all our efforts to be rewarded, once further funding rounds are taken into account.

And each investor faces their own sets of these types of tradeoffs. The later the round, the more investors come on board, the more tradeoffs, priorities, and attributes for your to consider.

4. Dynamics between investors

This is a super important topic and one that most entrepreneurs forget about. And yet, it can make or break a funding round (or even a company).

If you are approaching VCs then chances are you will be raising more money. And that means changes. It means changes to documents. It means questions and updates to and from investors and things that they all have to sign. It means a more and more complex cap table and more difficult decisions on how elements of governance are implemented in order to a) be effective and b) keep various types of investors happy.

We once walked away from a company that decided to launch a large crowd funding round. Why? Because I don't want to deal with a large number of very small investors, especially if they are not VC professionals. Remember, I only have x amount of time to spend on each portfolio company and I want to spend that time helping them overcome problems, supporting them in strategic decisions and opening doors for them. I do not want to spend it on admin and on coalition building (nor do I want my CEOs to spend time on that either). And I certainly do not want to spend it on twenty conversations with small angels on why a Series A investor is demanding major changes to the Share Subscription Agreement and why these changes are necessary for the business.

This also extends to basic logistics. Anyone who ever closed a round with more than a handful of signatories knows how frustrating and time consuming it can be. We once walked away from a seed round of a company we really liked that had more than fifty angel investors on its cap table and where, even with a sizeable investment from us, the cap table was so diluted that there was no lead investor to bring everybody else into line.

Why is this bad? Because although we were the only investor that did any serious due diligence (everybody else's cheque sizes were far too small to spend that much time looking under the hood), we were too small in the overall round to influence its dynamics. So we had to walk away.

If you are raising a round with a handful of angels and one institutional then expect the institutional (if they are taking a large chunk) to act as the lead. What does that mean for you? It means you should not agree a valuation or any other key parameters of the round until you have agreed them with the lead. The lead has more negotiating power and typically more experience in pricing and scoping the round. And there is nothing worse for you than having to go back to your angels and re-draft term sheets they thought were already final.

5. Final thoughts

  • Those that approach cap tables strategically and logically, seeking complementary investors that can add different value to the business, end up doing better than those that simply take cash from wherever it comes.

  • If an investor asked to see your deck, make it as simple as possible for them to do so. We get hundreds, sometimes thousands of decks. Make it easy for us to read yours, rather than putting it aside.

  • This means, don't make me log into some online platform, or click on links, or access a document which cannot be downloaded. Why? Because if I want to look at your deck while I am stuck on a train somewhere with no internet connection, you want me to look at it, rather than click on a download link, get frustrated and put it aside for some other time, by which point my attention might be distracted by something else.

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