Set Your Fundraising Pace: Raise While You Still Have Cash, and Start the Next Round Before Half Is Gone

Manage your fundraising pace. Lei Jun: “Fundraising is a confidence game.” What matters most in fundraising? Keeping enough cash on your balance sheet. When you do not need money, fundraising is easy. Run the company well, and investors will come to you. VCs need to invest their money. That is their job, and they look for opportunities to earn returns every day. Letting them find you is easier than searching for them yourself. This is Lei Jun’s first point: when should you look for money? Start when you have spent half of it. Fundraising is most painful when the balance sheet has no cash. You have virtually no negotiating power: if they do not give you money tomorrow, you die the day after. What bargaining power do you have? The secret is that you need cash in the bank to raise more. That makes the world even more perplexing: #OnlyThoseWithMoneyCanRaiseMoney—is that not a paradox? For example, if you raise RMB1 million in the first round and spend RMB500,000, hurry to raise the next US$1 million or US$2 million. Do not spend it all. Once it is gone, you have no chance. Think back to Xiaomi raising US$90 million. Just five months later, someone approached me and said, “Xiaomi is doing well. Do you want to raise money?” I said no. They come precisely because you do not need it. He asked when I planned the next round. I said I would consider it at year-end. At what price? I said at least US$4 billion. He said, “How about this: I offer that US$4 billion price this year. Would you do it?” It was that simple. I am not boasting: your company and your people have proved themselves in the market, and everyone believes in you. Second, when the company does not need cash, negotiations are much more relaxed. I was fortunate to meet several international investors who believed in me. They offered a price I could not even work out myself, simply because I had named US$4 billion. Xiaomi may be a complicated example, but the important points are these: First, begin fundraising when half the money has been spent. That is basically what I do. Once the money is gone, there is little chance, and the process is painful. Second, focus on running the business well. Getting investors to approach you matters far more than approaching them yourself. Seeking investors is extremely hard work. Negotiations are much easier when they come to you. Third, during discussions and negotiations, expressing confidence while remaining humble and willing to communicate is crucial. ---- Time for Robin. I always advise portfolio companies to manage their fundraising pace. Having me as an investor really is a fortunate thing. XD 1. The fundraising paradox is that having money helps you raise money. 2. Start the next round before half the cash is spent. Do not foolishly wait until you have nothing left and must plead with everyone for help. 3. Match your fundraising pace to your burn rate. If you burn too fast, you will constantly be raising. One misstep can leave you struggling to secure funding. 4. If investors think your next round will be difficult, this round is very likely to fall short of your expectations. If they expect a down round, they will generally not support the current round—or will demand a substantial discount now. That can start a vicious cycle of declining investor confidence. 5. Having ample cash gives you the confidence to take your time negotiating with outside investors. 6. First seek continued support from existing investors. Ideally, your shareholder structure includes stable, continuing backers holding at least 30%, allowing you to approach each round more calmly. 7. Produce clear results that bring investors to you. Negotiating is easier than when you have to approach them. 8. Do not give every investor the same presentation. Customize it somewhat if possible. Each investor cares about different things. Identify what your “target” investor wants and try to address it. You would do a little homework before interviewing with each company, would you not?