How to Build Momentum in Your Round

You'll often hear people, myself included, emphasize the importance of FOMO (fear of missing out) and building momentum in your fundraising efforts. As a VC, I have personally witnessed the impact it can have on an investor's decision-making process, especially when working with founders on their fundraises.

It's a crucial aspect of the process that can greatly increase your chances of receiving more term sheets from investors, and in a shorter timeframe.

However, the issue is that most founders don't know how to effectively do this. In fact, I've seen many founders mistakenly believe that they can simply create this kind of momentum out of thin air and deceive their way into securing a term sheet. While there have been rare cases where this has worked, I strongly advise against it.

Let me share an example of a founder who approached us at my previous fund. The founder claimed to have multiple term sheets already signed and urgently needed our response. Although such situations are not uncommon, something felt off about this particular founder's claim. We had a gut feeling that he was lying about having multiple term sheets, but we entertained the possibility that it was just our intuition playing tricks on us.

Throughout the entire funding round, our team continued to have reservations and suspicions, constantly questioning, "Is this founder being dishonest with us?"

Despite our concerns, we persisted and eventually decided to issue a term sheet to the founder. However, we added a condition: he had to provide evidence of the other term sheets he had received. It was only then that he admitted to lying about the term sheets in order to increase his chances of receiving an offer from us. Naturally, we rejected him for his dishonesty, as we had even considered investing in his company.

Instances like these are more common than you might think. There's a fine line between maintaining momentum for the funding round and crossing into the territory of "this founder is deceiving me." If you find yourself in the latter category, you risk being rejected. I know several investors who have encountered this situation.

So how do you create this momentum?

Here’s 3 tips:

1. Launch with a process

One major problem I often see founders make is not having the right process for launching their fundraise. Due to the lack of process these founders haven't prepared their network in advance and as a result, they end up taking meetings as they come. Weeks and months go by where they barely have 1-2 meetings a week at maximum.

But you see, when this happens to you the investors you speak to are perceptive. They can sense when there is no competition in your funding round, and this lack of competition destroys any momentum you were trying to build.

That's why it is crucial to prepare when and how you will launch your fundraise. Consider the following:

1. How will you warm up your connections?
2. How will you reach out to all the investors?
3. When will you start the outreach process (1-2 weeks before the "official" launch)?
4. Which two weeks will be your "official" launch?
5. How many meetings per week will you aim for during these two weeks?
6. How many people do you need to reach out to in order to achieve your goal in point #5?

If you do these simple 6 steps I promise you, you will create so much more momentum in the round. I always say to founders, the first 2 weeks of your “official” launch of the fundraise, you should be having 30-50 meetings with investors.

Without this, then everything will feel inauthentic as you cannot build momentum in the round without this. This makes this exercise the most important thing you can do to build momentum in your fundraise.

A large reason I see why founders fail at this, is purely because they procrastinate on doing the boring but important work on network building. Here's a bit more info on how to stop procrastinating.

2. Update investors where you are in your process

Another problem I often see founders make is not updating investors during the fundraising process. After having a promising meeting with an investor, they often go silent and wait for a reply.

To avoid this, it's important to regularly update each investor on the progress of other investors. For example, during a call, you can mention the number of people already in your data room or the number of meetings you have scheduled for the next week or two.

The key is to demonstrate to investors that you are a proactive communicator and at the same time subtly highlight the positive progress of your fundraising process. This approach will help you maintain momentum and keep investors engaged.

3. Backchannel properly

A significant aspect of mapping out your investor lists is finding connections into the fund. While most people discuss this in terms of establishing warm connections for when you launch the round, they often overlook the topic of backchanneling.

Backchanneling involves having someone close to the fund or person you are speaking to, who can speak on your behalf. They may provide additional information about the progress of the round or convey how impressive you are as an entrepreneur. By conducting backchanneling without your presence, it allows the investor to learn more about you and enables you to share information without appearing arrogant.

By having the right backchanneler in place (someone respected in the fund and in close contact with the investor you are directly communicating with), they can begin to provide certain information to the investor regarding your progress in your fundraise.

This approach helps create the desired momentum and fear of missing out (FOMO) without explicitly stating it yourself. As a result, it ensures the authenticity of the information, as it does not originate directly from you.

What else would you add? Send me a DM on linkedin if you want to chat more about it.