Raising venture funding is a time-consuming and excruciating process that, done most efficiently, typically takes a founder’s focus off their business for a couple weeks. “Drip” funding campaigns, where the capital comes into the business piece by piece rather than all at once, often take 3+ months by the time investors are identified, a term sheet is agreed upon, and legal documents are circulated back and forth. Adding the time and capital pressures of fundraising to operating a high-growth business can be difficult on even the most resilient and experienced founders.

There are repeat occurrences across financings we see that entrepreneurs are frequently unprepared for. Getting caught off-guard on a fundraise can mean losing leverage in negotiations, losing committed capital, or forcing the fundraise to drag on longer. With that in mind, we try to make the fundraising and diligence process as straightforward as possible for our potential investments, and ensure our portfolio is prepared to do the same in their follow-on fundings. Here’s some of what we frequently tell our entrepreneurs to expect when raising venture funding:

If your company is 90 days from out of cash, you are probably at least 90 days late to start fundraising (so start today!). Without fail, fundraising takes longer than it should. Even an investor that is interested from the beginning and moves very quickly will probably take a couple of weeks to get comfortable enough with your business, team, and the numbers to make a firm decision to invest. Next, a term sheet can take anywhere from a day to a couple more weeks to issue and find mutually agreeable terms while receiving firm commitments from other investors on the same term sheet (or a new one, if you’ve got multiple potential leads). Formal diligence and legal wrangling will likely take another 2-3 weeks, before funding ever hits the bank account. And that’s with a company that has identified their targeted lead investor from day one and are able to have the remainder of the round come together quickly, a position few companies are lucky enough to find themselves in. It’s very rarely the perfect time to fundraise.. founders always want their product, business, and valuation optimized for fundraising, but pushing back the fundraise until absolutely necessary can be incredibly stressful on the business and the founders, and create a difficult process. As the old adage goes, you’ll get the most money the quickest when you don’t need it!

There is no “right” valuation for a company, especially an early-stage startup. The valuation is what the market is willing to pay, and while we advise our companies on where we feel their valuations are likely to land on their next round of capital, ultimately it is up to their lead to set the terms of the investment. Of course, investors are always going to ask you what your valuation is —  we want to hear your thoughts first — but a great answer is “We think we will be in the $8-$10M range based on x,y,z metrics, but ultimately are looking for a lead investor to partner with who will set the terms for this round. Does this fall in line with what you’re thinking?” This allows you to get a bit of the valuation discussion out of the way early and make sure you and your investors are on the same page. Some may not want to lead, or may be scared off by the valuation, and it’s best to know that from day one. Valuation rarely delves into a negotiation.. if your thoughts on valuation are off by 30%+ from where the VC thinks it should be, they’ll probably just pass, not try and negotiate. So come in with a broad expectation of where your valuation should land and communicate that to the investors, but don’t set a strict valuation for the investors to stick to (or worse, expect them to negotiate down from that anchor point).

There are lots of details of any capital raise that are more important than valuation: the amount raised and where it is being allocated, upside and downside protection terms, and governance terms. And of course, who your partners are going to be. Choose partners you want to work with, partners who you are confident will add value frequently (and get out of the way when they realize they can’t)! Onerous terms (huge employee option pools, crazy warrant coverage, 2,3, or 4x liquidation preferences) can turn what looks like a generous valuation into a huge headache when the company goes to fundraise again or sell. Good lawyers are important for this reason, but, even better, find a partner with simple terms where the lawyers pretty much stay on the periphery of the fundraise. Makes everything easier, cheaper, quicker, and more fun!

Be wary of any investor that offers you a term sheet shortly after meeting you. Term sheets are far from binding and, while they should be an investor’s commitment to funding the company barring a major red flag coming up in diligence or negotiations, they all too often do not result in financing. It is totally okay to ask your investors how many term sheets they enter into a year vs. how many deals they end up funding.

Most of the business model digging, meeting the team, and major questions answered should occur prior to any term sheet being issued and formal diligence beginning. Diligence should simply confirm all the knowledge gained over the process of getting to know the company, team and entrepreneurs. If you have any red flags you know are going to come up, don’t leave them to be discovered in diligence – be upfront. This is on both the entrepreneur and the investor to make sure this happens. Entrepreneurs can speed up this process by having a standard diligence packet (previous fundraises, options grants, a detailed customer list and sales process history, financials, etc) on hand to send to investors, so they aren’t having to recreate the wheel for every interested investor. And investors should be guiding this process along the way and giving the entrepreneur any due diligence checklist they will have upfront.

Always work to raise capital (and sell your business) from a position of strength, not weakness. Having some breathing room to wait for the right metrics, to fundraise early, and to choose the right investor for your company is critical to your long-term success. Our companies hear it from us all the time – DROC. Don’t Run Out of Cash. Meaning your fundraise should get you a long enough runway to hit the metrics you need to allow you flexibility in choosing when, from whom, and how much to raise in the next round.

If you are an early-stage business nodding your head to this article and looking for capital, feel free to e-mail or Tweet at us.