The first time I asked a VC to fund me I got a term sheet. It seemed so easy. And then — it got pulled and I lost it.
When I went to raise money for the first time, I had never done it before myself, but I’d played a small part in many rounds. So I knew the cadence. I got the customer references in line. I built a great deck. I had my TAM and operating plan both carefully put together. I had the core team built. I had at least some revenue under contract already. And I had exciting market trends to tap into with a unique product.
I leveraged all of those with the best warm connections I knew, from folks that thought I was an A+ founder. That said “you should fund Jason.” And those all led to quick meetings.
What I didn’t know was how to deal with the process.
In our first pitch, we were offered a term sheet at $5m pre the very next week.
I thought it was fair, and certainly, good enough. But when I went to one of our “angel” investors (he wasn’t quite an angel, but let’s call him that to simplify), someone I’d known for years and trusted — he told me it was too little. That I needed to ask for $9m pre.
I went back and pushed for $9m.
The VC that issued the term sheet asked me why. I told him the angel told me to push for it. The VC said it was just way too much and incompatible with my model. He asked if I felt strongly about it. And the VC walked.
I tried to get him back a few weeks later, but the VC was angry. I didn’t get why at the time. But looking back on it, he’d moved quickly and decisively, made a fair offer, and then I’d asked for an 80% higher price without any great justification other than my angel investor told me I needed to. And I think that had undermined his confidence in me, and also implicitly said to him I didn’t really value him as an important partner. That he was fungible.
In the end, all worked out — but only barely. On paper, I got the higher price, but the drama was very high and the dilution was higher, so the effective price to the founders was the same. And the pain it took to get there was extreme.
The take-away for me in most early-stage venture rounds is this: your first real, bona-fide offer is often your best offer. Not because it’s the highest. But because usually it’s the VC that most believes in you. If the price is fair, that’s my #1 criterion.