Hiring & Fundraising: A Catch-22?
You need capital to hire, but investors don't want to invest until you hire for a key role or two.
October! The leaves are starting to turn & cooler weather is on the way.
đ Thought Bubble: Hiring & Fundraising: A Catch-22?
Every founder dreams of the day they can expand their team and add talented, smart folks to help the company grow. âExpanding the teamâ is on the use-of-funds slide in every pitch deck. Rightfully so, early-stage founders wear a lot of different hats. Theyâre managing product, sales & marketing, software engineering, etc⊠and while this works for the early innings of a company when founders are still trying to figure out if there is something there, at some point, the team has to grow.Â
The timing of adding new team members can be tricky, though. For roles that are mission critical to the business, like CTO, investors generally want to see progress on who will fill that role before they invest. Yet, founders probably wouldnât be raising money if it werenât to hire! We see founders get caught in this apparent catch-22: they donât want to be disingenuous and start recruiting before they know theyâll have the funds to pay a new team member, but on the flip side, they wonât get the investment without doing so.Â
For the earliest stages, investors recognize that youâre going to have to add folks to round out the team. There are specific skills and expertise you need to hire forâthatâs why youâre fundraising, after all. Itâs not the fact that you need to make critical hires that concerns investors, but a lack of progress in filling the role and/or the amount of apparent thought that went into deciding which positions should be filled that can hold investors back.Â
In episode 160, Matt Blumberg drives this homeâyou shouldnât wait until your round is finalized to start recruiting. If you do, youâre already behind. It takes time to find, hire, and onboard, especially for senior-level roles.Â
I completely understand not wanting to create false hope for potential hires. You should absolutely be transparent with candidates about where youâre at in the fundraising process, while simultaneously having in-depth conversations about their interest in joining the team. Ideally, you should be qualifying individuals before youâve secured funding and have a sense of who is a serious contender for a specific role.Â
Investors know it can take months to fill roles. This is why they want to see some type of material action around hiring for key roles before and during fundraising. Even when there are big gaps on the team, investors are more open to investing if founders come in with a realistic shortlist of candidates for senior-level roles and an explanation of why these folks are the right fit. It gives investors confidence that the founder can effectively mitigate team risks.
If you arenât proactively planning and recruiting during your fundraise (and honestly, before you start), you will lose your most precious assetâtime (episode 144). Once funding is secured, you want to lean into the momentum and be ready to roll, not scrambling to fill roles.
đŁ New Pre-seed Dataset (& Intel!)
Pitchbook announced a change to how they categorize early-stage deals, moving from âangelâ to âPre-seedâ for companies that are less than two years old and taking their first check from an institutional investor. Pitchbook reports on key trends at the Pre-seed stage in their report.
The SpringTime Ventures (STV) take: Itâs always felt challenging to find good stats on a companyâs first financing because of the way Pitchbook and others classify rounds, but hopefully this change continues to demystify this earliest round of funding.Â
đ€ How To Win Investor Support For Your Startup Pivot
Artem Semjanow, CEO of Neatsy.ai, wrote about how to bring along investors in the midst of a pivot. Communication is critical; your investors shouldnât feel blindsided by a new direction because you should be keeping them updated.
The STV take: Weâve worked with portfolio companies on pivots and itâs not easy on the founders or the investors. The best thing you can do is over-communicate.
đ« Avoiding Common Fundraising Mistakes
Lorine Pendleton at Portfolia Rising Amerca Funds shared a LinkedIn post that highlighted the four biggest mistakes founders make when raising and ways to overcome these.
The STV take: One area she mentionsâunrealistic valuation expectationsâhas come up a lot in conversations with other investors. There is an element of letting the market set the valuation (or cap on a note or SAFE), but as Lorine suggests, itâs important to do the research to know whatâs standard for your stage and industry. It doesnât just help investors; knowing whatâs standard can help you avoid over- or under-valuing the company, which, as previously discussed, are both problematic.
đŽ Decompression Zone
The cause of Parkinsonâs, a terrible disease that causes folks to have uncontrollable movements, has eluded researchers and stifled therapeutic development for the condition. A new paper from the University of Copenhagen finds that the spread of damaged mitochondrial DNA throughout the brain causes symptoms. Hopefully, with this new insight, better diagnostics and therapeutics can be developed.
đ Have a great end to your week!