Short panel-style conversation (Charles Hudson and others) advising founders about inbound fundraising: how sudden inbound interest can lead to resource-intensive diligence, the risk of single-threading with one firm or wasting time without a term sheet, and the importance of truthful, precise language when communicating investor interest because VCs will verify claims through their network.
On the operating side, I remember when you're getting inbound from an investor, suddenly like you blink and then you're in a diligence process kind of by accident and you find yourself spending all of your team's resources to fill out large diligence questions, filling out cohort analyses.
For a long time, venture didn't do as much outbound as they do now. Now I think most firms do a ton of outbound, so getting that email doesn't mean what it used to mean. But I think for a lot of founders, the prospect of somebody A being interested in your company and B being able to raise around without having to do all of the process oriented stuff that Aaron says, it's very attractive. But I've seen two things go wr is you spend a bunch of time with one firm and you don't get a term sheet or B you get single threaded with one firm they give you an offer. It's not great, but you're like, do I want to walk away from this offer or do I want to go run a full process? That usually comes down to the risk tolerance of the founder. When you run an auction, you're getting feedback along the way about how interested people are. In your business, where.
I try and give a lot of advice to founders is to be very careful in the words that you use when you try to build momentum. Be very careful not even to over exaggerate to the point where an investor would consider it a lie. Always remember, VCs all know each other. So if you say one fund is in diligence or another fund has committed, we're going to talk to those people and just confirm that it's true. And the second that that fund says anything to the contrary of what you said, it's a red flag. And VCs look for any reason to say no.
