How to not have your spirit crushed by fundraising
The less glamorous side of raising funds: a note for entrepreneurs, artists & activists.
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How to not have your spirit crushed by fundraising
I am beginning a new fundraise for my startup studio, Imagination Machine. Pretty soon I’ll be meeting with potential investors, pitching them my project, and hoping that they decide to invest.
I admit that I feel something like dread, or fear, or PTSD. I have done this, fundraised, a half-dozen times in the past 15 years for my various startups. Most of those attempts have been successful: altogether I have raised close to $100 million for my projects. Some of those episodes have even been celebrated in the press.
But all of those fundraising experiences have been stressful, emotionally exhausting, and in general periods of my life that I am not eager to re-live.
I find that entrepreneurs rarely write about this. In startup mythology, fundraising is a glorious challenge in which the entrepreneur, using the genius of their invention and the force of charisma, convinces investors to give them millions, and then everyone gets rich at the end of the story.
I’d like to write about the less glamorous, more uncomfortable side of fundraising in case other entrepreneurs feel the same, so that they know they are not alone. And not just entrepreneurs: also artists trying to get funding for their film or book or show, activists pitching donors, and anyone who needs financing for a project that is tied up with their sense of self, their personal aspirations and their purpose.
I would also like this time to be different for me. I want to find a way to fundraise that is positive for my spirit, that reinforces my energy, that I do not need to fear. I think it is possible, so I am embarking on this essay as a way to find a better strategy.
* * *
To understand why fundraising is so hard, we have to rewind a few months or years. Fundraising is never the first step of a project.
Like a lone camper trying to start a fire with no wood and no lighter, an entrepreneur needs to make something from nothing. Imagine working for many months or years to develop an idea, to collect the sparks of inspiration and flesh them out into prototypes, plans, and financial projections. You call in all the favors you can from your friends, former colleagues, family members, and even people you barely know. Maybe you ask family and friends to pitch in a little money, too, to fund a few expenses and make sure you can eat and pay rent in the meantime. You almost certainly dig into your own savings, if you have any.
To pull in these favors and small checks, you have to convince people that your project will work. You have to convince people that the idea is great – no, better than great, that it is new-to-the-world and radically powerful – and that you, personally, have what it takes to build it. These claims you make, these assertions of your own ability, have a certain weight that you start to carry.
You probably also mobilize a few people to join you as cofounders or employees, by convincing them that the project is going to succeed and that you are a leader worth following.
So by the time you get to fundraising, you have already invested your entrepreneurial energy in the project. This is a kind of energy that is mythologized, that is compensated in our economic system with great riches, that is necessary for any act of creation. It is the same energy that is needed to start new businesses, artistic projects, and political campaigns. It is a very personal kind of energy, an initiative, a will-power, to manifest something in the real world that comes from your imagination.
It can be an energy that is intimately tied to your identity and reputation.
Fundraising can feel existential. If you succeed, you fully exist in the way you imagined, your true identity is manifested. If you fail, you have let down your family and friends, you are responsible for a failure in the careers of your co-founders and employees, you have failed to become yourself.
There are rational counterarguments to all these feelings: no, this project is not your identity. Your friends and family will be just fine even if the project fails. No matter what, you are learning and growing.
These counterarguments, while rationally sound, never seem to change the emotional reality of existential stress.
* * *
The focal point of the stress is the pitch meeting with investors. You pitch your project, with all of the emotional baggage I’ve just described, and the investor tries to poke holes in it, to help them make a judgment about whether they should invest or not.
Between the entrepreneur and the investor, there is a fundamental difference in the risk each one is taking: the investor gets to make multiple investments to diversify risk. The entrepreneur is all-in on this one project. The investor makes a great salary in the meantime, no matter the outcome. The entrepreneur is living on rice and lentils. The investor has an identity, and a social reputation, that is independent of the success or failure of this one project. The entrepreneur has tied everything to the project.
The stakes are just so much higher for the entrepreneur.
Yet it is the investor who has all the power in the meeting, the power to say yes or no.
In too many cases, this power is not used respectfully. Investors can sometimes be distracted, or dismissive. Because they are used to having the power in these relationships, and because they evaluate dozens or hundreds of projects every year, they can develop a feeling of superior intelligence. Because they say no the vast majority of the time, they can have a default attitude of “this is probably a bad idea that won’t work for many reasons” before the meeting even starts.
To be sure, investors have a hard job, too. The vast majority of startup pitches are not good: either too naive, or strategically misguided, or poorly prepared. Some minority of pitches are outright scams. An investor has to filter the noise of hundreds of pitches while remaining accessible and professional. And some investors, of course, take pains to always be respectful and to never be dismissive. These are the good ones!
But in the course of a fundraising process, an entrepreneur will inevitably pitch to several investors with a bad attitude. And since, as they say, beggars can't be choosers, an entrepreneur is still eager, or desperate, for a yes, even from the investors who disrespect them and their entrepreneurial energy.
The knowledge that you will inevitably find yourself in pitch meetings with investors like that causes dread, makes it hard to sleep in the anticipation of fundraising.
* * *
Then there is the waiting. After pitching your little heart out, you wait for an answer, a judgment about whether you are worthy of financing. This waiting can last days, or weeks. Should you email the investor (again) to check in? You don’t want to appear pushy or desperate. So you wait.
It is frustratingly hard to be productive in this waiting-phase, when an email or a call can come at any minute announcing your fate. Some days go by with zero productivity, which feels bad, and sparks vicious cycles of self-doubt. In the meantime, you might be distracted from running your actual business and the project may suffer. This period can be long, longer than expected, many weeks turning into many months.
Sleep can be elusive.
* * *
Another source of stress is the weirdness of how you need to talk about risk when fundraising. As an entrepreneur, you believe in your project, of course. But you cannot guarantee that it will work, no one can. You think it will work, you hope it will work, you are ready for the challenge. But the future is a mystery.
The smartest investors understand this, and depending on the stage of the project they will accept the risk of the unknown in your future.
Many investors, however, are less skilled or experienced in evaluating risk differently at different stages of a project. These investors want to be assured by the entrepreneur that the project will work. They want the entrepreneur to confidently tell them what revenue numbers to expect in one, two, and three years.
They ask questions that are all versions of the same: tell me what’s going to happen in the future, so that I can be reassured that the risk of my investment is low. Reality is probabilistic: there is always some x% chance of this scenario, y% chance of another. Often, investors ask for binary answers.
For an entrepreneur this is enormously stressful and an impossible situation. You likely need the financing to continue at all, so you want to respond with your best predictions, even if you add caveats about risk. You need to project confidence, and of course you are confident. But perhaps your confidence is being interpreted as an assurance, as a promise, which is not what you intend to communicate.
Each time you give one of these answers that is probably misinterpreted as a promise, it adds to the weight that you carry.
* * *
In the end, all these weights add up. The weight of your reputation on the line, of your money on the line, of your friends’ and family’s money. The weight of a dozen micro-indignities in the course of pitches, and the endless waiting for answers. The weight of the hopeful predictions you made that you know are misinterpreted as promises.
To me, it all adds up to a feeling that is more than just stress. It is a feeling that I can only describe as a crushing of my spirit.
My mind wanders to places that make me want to quit and choose a different career. I start to wonder: why do these people who control money, usually not even their own, get to decide whether I am worthy of pursuing my project? Why, after all the energy I’ve already invested, does my future come down to a handful of decisions that are outside of my control? Surely I can think of a better, more nourishing way to invest my energy in the world?
I know these thoughts are natural reactions to stress, to psychological discomfort, but they sure do make it worse.
* * *
This is the part of the essay in which I come up with a better way to fundraise, a new path I can follow this time around. Because I have lived everything I’ve described here before, several times, and I do not want to live it again.
These past months, preparing for this new fundraise ahead of me, I have given the question a lot of consideration. I came up with six strategies to raise funds without having my spirit crushed, so that this time is different.
Strategy #1: I’d rather fail than work with the wrong investor.
The first strategy is about choosing the right investors. So many of the stressors come down to the relationships I have, and am building, with investors. Are they engaging with me in a spirit of partnership and mutual respect? Do they understand the level of risk, in a way that allows me to be completely honest about the probability of success and the probability of failure?
When I started Imagination Machine several years ago I was very lucky to find myself in the Nantes business ecosystem, surrounded by investors who are kind, respectful, and engage with me as peers. I learned that this is a better way to fundraise and a better way to operate post-fundraise.
I resolve, this time, to once again only work with investors who get it, who can become real business partners and peers. Even if that means that I fail in raising funds. I would rather fail, raise no money, than work with an investor who acts superior, or disrespectful, or leaves me waiting too long, or demands impossible assurances. There is a great expression in French: Il vaut mieux être seul que mal accompagné. Better to be alone than to be in bad company.
Strategy #2: Have a good plan B.
I’ve found that the best way to reduce stress is to have a plausible, appealing plan B in case the fundraising doesn’t work. This is a super powerful psychological hack. The first strategy about being OK with failure is really only possible with this second strategy already in place.
A Plan B could be a different way to proceed with the project, a way to proceed without investors, to generate revenue quickly, to do some consulting projects in the meantime. It could be an alternate way of financing with debt or crowdfunding.
Or it could be an alternative project, or a career change. It could be just a deep acceptance of the possibility that the project will not proceed, an inner peace about it, and ideas about what might come next.
In my case, I know that Imagination Machine can continue to exist even without a new fundraise, for at least another year or so, enough time for us to have another chance.
Once my Plan B is clear, I can write it down and put it in a locked drawer, stop thinking about it and focus entirely on Plan A. The fact that Plan B exists will make everything easier.
Strategy #3: Make it a team effort.
Nothing reinforces the spirit more than having great companions. As an entrepreneur, I’ve had the tendency in the past to take the burden of fundraising entirely on myself, of feeling the existential stress as something deeply personal. But then I learned, in working with my cofounder Alon at Good Eggs, that his partnership made me stronger.
This time around I am engaging the whole team at Imagination Machine in the fundraising process, to make it a collective effort as much as possible. I am still leading the charge, but I am supported and emboldened by true partners who see the challenge as something we can tackle together.
Strategy #4: Pace myself and be judicious with time.
Fundraising can be long. If I am distracted by running my business during the process, it can be too long, which sparks a vicious cycle of stress and underperformance.
But a very close management of the timeline can make the whole process feel more organized and under control.
This time I am going to start with a preparatory phase, which I have already started, of meeting potential investors, gathering their feedback, and refining my pitch and strategy. Because this phase is preparatory, the stakes are much lower so the stress is significantly reduced. Because I am genuinely interested in the feedback I hear, I have the opportunity to really improve my pitch.
I am going to be very selective in which investors I reach out to, based on strategy #1. Few entrepreneurs really choose the investors they contact, but it can save precious time.
I am going to set a deadline for the fundraise: if we have not made significant headway within two or three months, we stop. The signals from the investor market should be clear by then, and if the signals are not positive, any additional effort is a waste of time.
Strategy #5: Courage.
To invest entrepreneurial energy and then put it all on the line takes real courage.
I used to think, seeing brave people, that courage was the absence of fear, or the inverse of stress. I learned as I grew up that that’s not true. Courage only makes sense when there is fear and difficulty that needs to be overcome. Courage is the willful internal battle with fear. Courage is difficult and requires enormous, continuous energy.
It might be funny to use this kind of dramatic language in talking about fundraising, but I believe it is warranted. Entrepreneurship and artistic expression and activism can be heroic.
Strategy #6: Remember all this when entrepreneurs come and pitch me.
In my job these days, I’m half-entrepreneur and half-investor. I meet with entrepreneurs every week who pitch me their projects, hoping for my support.
I resolve to take a few minutes before every meeting and remember: their job is harder than mine. They are taking significantly more risk than me. Be respectful, damnit. Do not make them wait, do not think you are smarter than they are, and do not ask for any assurances they cannot reasonably give.
* * *
I’ll tell you what, it feels really good to do this exercise. I feel ready to fundraise for Imagination Machine with my spirit reinforced by the whole thing, with nights of good sleep in the meantime, and hopefully with great partners at the end.