Don’t kickoff a fundraise in late summer
Unless you have to... manage runway responsibly!
The longest day of the year was last Friday, and it’s officially summer. So lets get ahead of a common question I get asked: No! Founders should not kickoff a startup fundraise in late summer - particularly late July through August.
Carta released some data recently, that at first blush, would seem to suggest otherwise.
Looking at primary rounds signed by month, fundraising volume holds strong through the summer months. As a result, one might infer you can fundraise & sunbathe without risk in the summer months. Unfortunately, this is not the case.
Two challenges, though:
The summer lull is real, it just shows up later in the year (Sept / Oct)
Fundraising is more complex than a binary outcome of, “were you able to raise capital or not?”
First, let’s take another look at the data
Fundraises take time. Most take ~6-10 weeks before a term sheet is “signed”, some dragging on for up to 3+ months. That means that the impact of “VC’s being on yachts” in the summer doesn’t actually show up in the “deals signed” data until 1-2 months later. This is why, for example, you see a two month lag at the start of the year in Jan / Feb before deal volume picks up.
So we need to be looking at Sept & Oct deal volume if we want to evaluate the impact of the summer slowdown. If we look at the most recent data from 2022 - 2024: Deal volume in Sept / Oct is down 15% from summer, and down 30% from highs (usually in December).
Interestingly, you’ll see this trend seems to be getting worse in recent years. I largely think that this is because the VC and founder ecosystem has coalesced around the idea that July / Aug is, in fact, the time for families to vacation together, particularly in a post-COVID world.
Second, let’s consider the full complexity of a fundraise
As any founder will tell you, fundraising is not a single, binary outcome. There are many variables founder’s want to optimize:
Was capital raised?
What fund(s) lead & participate in the round?
What are the financial terms of the round (amount of capital raised, valuation, dilution)?
How much time does the fundraise take?
The best founders & fundraisers are able to create “momentum” with investors, ushering them along in a process that builds FOMO and hype for the startup. The more hype, the more likely to convert more & better VC’s to term sheet. Multiple term sheets can then be used to negotiate better terms for the founder.
Some VC’s are absolutely taking vacation in July & August. This is especially true of more tenured VC’s who are more likely to sit on the investment committee, more likely to have children that are off for the summer, and more likely to have had successful venture exits that afford them the ability to hang out in large villas in the French Riviera and dock their yachts. Wouldn’t you?
This means that it takes more time & coordination for a VC to conduct due diligence, build buy-in from the full investment team, and ultimately vote on an investment. VC response times slow down. Which in turn, slows down the momentum of the fundraise. Which again, in turn, leads to longer fundraise timelines and worse outcomes for the founder.
tl;dr - Fundraises kicked off in late July and August risk generating less excitement with investors which leads to fewer term sheets & worse terms for the founder.
So what should you do as a founder?
Operating a cash burning, VC-backed startup with <6 months capital is risky. Additionally fundraising with such little runway is usually a negative signal to VC’s, and I wouldn’t recommend it. So:
If runway is not an issue (can maintain 6+ months), don’t launch a fundraise between July 15 and August 31. If you can’t kickoff the fundraise at the beginning of summer, then delay the fundraise until September when everyone is back.
If you have to run a summer fundraise b/c of capital constraints, warm up more relationships with VCs through coffee chats & casual meetings so they can come up to speed more quickly when you kick things off.
Regardless, don’t start & stop a fundraise multiple times. If you are already in the middle of a fundraise, just keep pushing. It’s usually a negative signal if a fundraise is put on pause.
If you’re a founder and want to chat about your fundraise strategy, I, for one, will be available all summer and am only one email away.
HAGS,
Clayton
P.S. - As always, a huge thanks to Carta for publishing the best data in the ecosystem.