205. Lessons Leading: Momentum

VC Minute
I made a critical mistake by underestimating the importance of momentum.

VC Minute – quick advice to help startup founders fundraise better

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Today I have a more personal lesson that is specific to this raise but still carries some valuable insights. For all of my talk about the pool party, getting your lead investor to jump in the pool first, splash around, and shout about how much fun they’re having in order to get other investors in the pool, I was largely unsuccessful in doing this.

The round ended up being SpringTime, a large local angel group, Clocktower Ventures, and Service Provider Capital. These are all great folks to have in your round, especially for a FinTech with a local business angle. But we didn’t fill the full round, and that was largely due to something that I haven’t talked about yet: momentum.

Here’s the full timeline. We first started helping Moxey raise in Q2 of 2022. The SpringTime process enables us to get to a yes, whether or not there’s a lead in place. We then go out and help them find a lead. The whole second half of 2022 was one of the worst fundraising environments in nearly a decade. It was a complete wash.

By December 2022, we decided to step up and lead and started talking to other funds about Moxey again in early 2023. Another fund stepped up to co-lead in February of 2023. And we were happy to have them, as they had a practice of leading. With an experienced co-leader, we amped up our outreach efforts for all of Q1 last year.

That other fund sat on their hands for the next four months. That’s a story for another time and a painful mistake on my part, that will take more than a few minutes to unpack. We’re going to skip that for now. By the time we were negotiating the term sheet, it was Q3, and then that fund killed the deal internally. And they nearly killed the company.

SpringTime stepped back up as the sole lead investor in September of 2023. So imagine you’re another VC and this tiny fund has been talking to you about the same startup for the last year and a half. They had a lead, the lead dropped out and now that tiny fund is leading by themselves. Where’s this fund-based, oh, they’re in Colorado? What are their highs?

By Q4 of last year, some funds were hearing about Moxey from us for the third or fourth time. To say that’s a bad signal would be an understatement. To extend the pool party analogy, I was in that dang pool for so long that I was shriveled like a grape, my teeth were chattering from the cold, and my voice was hoarse from shouting for a year straight about how much fun I was having. Not exactly a good look.

One of the roles of a lead investor is to be that person in the pool, to build that momentum that will bring other investors in. The momentum in this round went in the opposite direction. We managed to get it done, but only just barely.

I made the critical mistake of underestimating the signal that other funds derived from that ridiculously long, drawn-out timeline. This is why the best fundraisers have a tight process. They build that momentum, turn that momentum into signatures, and then they’re done. If there is a next time that SpringTime leads, you better believe that we’re going to run a tight process and that will be that.

About AVL Growth Partners
AVL Growth Partners, founded in 2009, is the leading fractional Finance and Accounting firm supporting organizations in pivoting from growth to scale. AVL brings an experienced team of CFOs, Controllers, and Accountants to your organization, delivering transparent, strategic actions for short and long-term success. Transform your financial approach affordably with AVL, supporting companies coast to coast – get to know AVL Growth Partners at avlgrowth.com. (Sponsored)

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