The current landscape of fundraising for start-ups, companies and VC funds, as well as best practices and hacks… and how to get those investors to giving you the money.

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Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Bertrand

Hello and welcome to Tech Deciphered episode 63. In this episode, we are going to talk about the evolution and the current landscape of startups and VCs fundraising. We will talk about this evolution and landscape for fundraising, both from a startup and VC sides. We are going to talk about the best practices, strategies, process, tactics, and hacks for fundraising on both sides when you are a startup or when you are a VC firm. And ultimately, we will finish on how to get investors to commit to give you money. Hi, Nuno. How are you?

Nuno

Hey, Bertrand. We’ll start with the evolution and current landscape of startup fundraising. It’s been a couple of exciting years. We got to the height of it all, the bull of all bull markets, actually in 2021, post-COVID. Then we had 2022 and 2023. Very sharp correction, dramatic reduction in venture investments. ’24 was a good year. It’s a year that scaled back again, seems stabilizing. I think we’ll see what ’25 has on hold. My prediction is that it’s going to be a great year.

Bertrand

Yeah, 2021 was pretty shockingly good post the start of COVID. After a sharp wait and see by end of 2020, things were going back not just to normal, but to overdrive. It’s really by the end of 2021 that the music stopped. We had to worry about inflation with interest rates going up. 2022 was definitely bad for startups and VCs alike. But as you said, 2024, we are back to a better place. I would have the same bet for 2025, as you have, Nuno.

Nuno

One interesting piece is there’s something that I think changed everything in 2024, which is AI. If we didn’t have AI in 2024, I don’t think we would have had this landscape. Important to note, and we’ll talk about it later on when we talk about the landscape for actual VC fundraising, that the way that VCs work in their cycles and how they raise money, there’s always a little bit of a lag around the table. It means there’s still a lot of what we call dry powder with VC firms.

This means that VC firms have raised quite a lot of money from limited partners for 10-year funds with, for example, four-year investment periods. Therefore, they still need to deploy capital in whatever market they’re in. The fact that there were a lot of AI opportunities means that they’ve been deploying a lot towards, for example, AI place. That’s going to change as well. We’ll talk later about, again, the VC fundraising landscape, but there’s going to be a little bit of an adaptation on those two time lags around the table.

But for me, the big effect of 2024 was without a doubt, AI.

Bertrand

Yeah, and it’s very interesting because when you think about it, the new AI revolution started with LLMs, with OpenAI launching ChatGPT. And this is an event that actually started end of 2022. So that AI revolution, financing, fundraising, actually started in 2023. But at that time, it was still so bad from an overall macro perspective that it was not enough to change the big trends. But at the same time, for sure in 2024, I think it had time to turn around. We’ll talk more precisely about the numbers, but it’s pretty clear that, as you say, AI has taken over.

Nuno

The height of it from the numbers we have in mind shows that on a global basis, 2021 was the all-time high in terms of startup investing at 750 billion. We’ve now had a significant reduction, basically around 349 billion, if the number is around correct, but certainly as deep as that in 2023, returning basically to levels that we saw back in 2018-2020. 2024, we went back up to around 370 billion. I think this year is going to be higher as we discussed before.

One clarification I would say, a lot of people would say, Is that true across the board? Is everything being equally dispersed? Not really. We’ve seen that early stage has suffered more. Mid to late stage, in particular in 2024, had another peak. Not peak year, but had a significant amount of capital was really deployed in mid to late stage investing. Last year, backing projects that either were already on their way or projects that are around what we would consider structurally AI, and therefore that are much more capital-intensive even if they’re earlier stage.

Bertrand

It’s also more going to the bigger firms, if I’m not wrong here. It’s more to the bigger firms. In terms of investment, I guess it was also more to the bigger startups, if you pick an operator AI, for instance. I guess it has been actually pretty tough. If you are not one of the top 20 VC firm, if you are not one of the top 20-50 AI startups, what we’re going to talk about might not feel the same. You can argue that the bar got much higher for VC firms as well as for startups. It’s definitely a different world versus 2021, where things were good for mostly anyone.

Nuno

Basically, if we look a little bit at funding sources to startups, obviously, traditional VCs have reduced dramatically, which is not surprising as we were talking about before. Angel investors and seed funds also had a reduction. Obviously, as you could imagine, if people, very high net worth individuals are normally angel investors and microfunds normally are smaller, they obviously had the tension of reducing their pace of investment, maybe in their own new fundraising cycles themselves for new funds.

Large corporations had reached very aggressive activity back in the day in 2021, but now there’s a little bit more moderation happening to it. Then obviously, we’ve seen family offices coming more into the market in the last few years and being more aggressive around directs. How does that landscape look to you, Bertrand?

Bertrand

I think it’s definitely right. Maybe another piece of the puzzle is that if you look at some US investors going to Europe, for instance, expanding internationally or to China, it went back. Many firms, if you take in China, separated from their Chinese office. If you think about investment in Europe, so many reduced, actually, their investment in Europe. So quite typical that when things are good, you try to go pretty global, you try to expand, and when things are tough, you go back to your core. I guess China is a bit different story. It’s more for geostrategic reason. But you could argue the landscape also has changed dramatically locally there.

Nuno

It’s also true, obviously, of what we’ve seen in terms of the sectors. We’ve just talked about AI and deep tech in general, where it’s been booming, and it’s basically stood up. Some of the numbers would be that AI deals are 35.7% of all global VC deal value. By value, it’s incredible, which is record. But it’s not true of everything else. If we look at other sectors, for example, crypto, there was a bust and there’s no recalibration, and it’s not true across the board in terms of sectors.

Bertrand

Crypto, for sure, went through a huge burst. This one, you could argue, was mostly caused, at least in the US, by the action of the regulators from the SEC and others casting a cloud on the industry. I wonder how much it will go back to a boom, actually. Right now, now that we have someone who might be the first pro-crypto president in the US. What do you think?

Nuno

Well, I won’t comment on the present being pro-crypto or not. I think we might see a re-acceleration of crypto this year, in particular because there’s a lot of uncertainty geopolitically around the world, et cetera. Normally, I’d say that’s a clear tailwind for it. The regulatory environment, at least in the US, seems like it’s going to get further clarified. If it does, I think we’ll see a great year for crypto in the US.

Bertrand

We have climate tech and clean energies. I guess this one, we have seen the number since the funding fell, actually, pretty significantly in 2023, 30-40% before the year before. My guess is that this is going to change very significantly for very different reasons in US and Europe. If you take the US, all this ESG stuff is going to decrease significantly for investment related to it, because definitely this is not something that’s supported by the new administration.

We can remember the drill, baby drill mantra. It’s not totally pro-climate tech or clean energy. I would expect much less investment there and actually a reallocation to more traditional energy source. But in Europe, it might be changing for very different reasons, simply because there is no money and there is a lot more actually investment that might go to defence spending. There have been a lot of talks in that direction the past few weeks. The last I was hearing actually is a willingness to dramatically change the meaning of ESG or potentially drop it all together in Europe.

Most people might know this movement started and has been extremely strong in Europe. I started hearing that, yes, there was a discovery that accelerating defence funding while keeping ESG mandate might not work.

Nuno

Indeed. If we look at biotech and health tech, obviously, we know the cycles on biotech and health tech for start-ups are very different. There’s always a capital intensity, or in general, there’s a capital intensity to some of these more structural plays very early on. It’s either a binary, either this works or it doesn’t work. You get FDA approval, you don’t, or you get this, or you don’t, et cetera.

But the biotech market, which seemed to have been super hot in 2021, then really had a significant correction as far as 2023. I do anticipate that there were a little bit of signals of revival in ’24, 28.1 billion in biotech versus 21.2 billion in 2023, so there was a little bit more optimism, definitely significant growth there.

I suspect in particular, biotech, we will see a significant revival of 2025 and 2026 in terms of investments, and probably in health tech as well, if I make an educated guess out of it for reasons that have to do with the cycles that we’re currently on, and the fact that some of the deregulation movement that we saw around COVID is here to stay, and therefore, that would be, again, a great tailwind for health tech innovation.

Bertrand

Let’s not forget the new movement launched by Brian Johnson, “Don’t Die”. I think it’s trailblazing a new path in that direction. Actually, I’m interested to see what all of this is going to go versus the more traditional biotech, health tech industry.

Nuno

That’s almost not a health or longevity trend. It’s like someone trying to create a sect. “Don’t Die.” he defined it as a religion. I’m like, Are you kidding, man? Really?

Bertrand

He totally defined it a few weeks ago as launching a new religion.

Nuno

Oh, man. Okay. Cool stuff. Yeah. Great.

Bertrand

In some ways, it’s not so different from many religions trying to find path beyond death, we will see.

Nuno

I would frame its religion versus sect. But yes, okay. Fair enough. For those of you listening that have been reading all these articles on why Silicon Valley is becoming Christian and all these stupid dimensions around the opportunism of some people that all of a sudden have become Christian. You guys will recognize that I’ve been Christian Catholic for a while. I’ve been talking about it for a while.

But maybe switching to non-religious topics and staying with the fundraising topic. Fundraising for VC firms. It’s been an interesting world. Just to frame a little bit, VC firms need to raise money from what we call limited partners, LPs. Over time, the cycles of fundraising for VC firms are different. Funds normally are 10 years with potential extensions. Investment periods, which is the time period, again, to recall you guys that haven’t heard some of our previous episodes, investment period is the time period under which a VC firm can invest in new portfolio company. It’s where they do their basic portfolio construction.

And then investment periods can be three years, four years, five years. After that time period, the only investments that the VC firm can do is in follow-ons, so putting more capital into existing portfolio companies they already have.

Normally for VC firms, the cycles of raising are around the investment periods. If my investment period is three years, I’ll probably go back to market to raise my next fund two years into my fund because I’ll have 1–2 years to raise the fund. Yes, guys, it takes around 1-2 years to raise a fund in many cases. The landscape that we’re currently on is we hit the height of the market in ’21 and ’22.

In terms of banner years, ’22 alone, the numbers I have is for US venture firms, they raised $172 billion in that year alone. ’23 and ’24 have been really, really tough years. In 2025, the start of the year, I’d say, is quite similar. And so all the numbers that we’ve had, I have that basically for 2023, the US funds raised around 67 billion, again, versus 172, 173 billion in 2022. The money is getting more and more concentrated to the point that Bertrand made earlier.

It’s been really concentrated on the bigger firms. There’s more and more multibillion dollar funds. I can come back to that later. I feel that’s a trend that I don’t fully understand why LPs are putting capital into larger funds when we know that’s very difficult for very large funds in venture capital to return great. You have to have smaller funds, like 500 million, 600 million, seems to be the number that for a long time we’ve discussed, seems to work for venture capital, and we now have multibillion dollar VC funds, which I find a bit intriguing. But that’s what’s happening to the market. The market’s definitely tougher.

The cycles for fundraising for VC firms are definitely more linked to macroeconomic situations and portfolio allocations from big investors. We typically raise money from either institutional investor, funds of funds, multifamily offices, or we raise from single family offices or very high net-worth individuals, or we raise from corporations that are willing to be limited partners in us, or even more up stream, the classic pension plans, endowments, university endowments, et cetera, which are even more regulated. All of these players seem to have their own portfolio considerations when looking at venture capital as an asset class.

Bertrand

I think to your point, Nuno, I have the impression that the VC industry has changed quite dramatically between the smaller players, early stage players, Series A, B, and the ones that, okay, we call them VC, but practically, it’s a very different animal when you are investing billions in a new run from OpenAI or XAI or SpaceX. 10, 20 years ago, when we’re talking about investing billions at 10 plus billion dollar valuation, it would only have been possible in the public markets.

In some ways, I feel that our definition of VCs, and we keep saying the industry gets bigger, but in some ways it’s probably because firms early on are not going to get their financing from the market anymore. They prefer to stay private longer, get more money from private investors, and delay their entrance to the public market. Technically, there are VCs, it’s still private companies. Could call them startups if you still want. I feel it’s just a very different animal, and some have decided to just go all the way in that new direction, versus staying in their previous lanes.

Nuno

You’re objectively right, but the point I’m making is more nuanced, which is if you have a firm raising 2 billion, saying it’s a VC fund, and then they deploy 80%-90% of their fund in growth rounds that are later stage. The way they raise their money, if it’s a VC fund, is for earlier stage investments. But effectively, what the fund has become is a growth fund. If I’m an LP, I give you money for a VC fund, I’m expecting VC fund returns, which is like 2X, 2.5X, if you’ve done well. But if it became a growth fund, it might not be that.

Bertrand

Oh, yeah.

Nuno

There’s an added issue to this. You mentioned the case of OpenAI and the Anthropics of the world et cetera, which is in some cases, some of these later stage investments are a little bit more risk adjusted, but others are not. If you come into OpenAI at 150 billion, good luck with that. How do you 2X on that. If you come now at the next round, which we’re now discussing, maybe they’ll raise at 300 billion, 2X is 600 billion, assuming there’s no more dilution along the way.

At some point, you’re like, How does that work? Again, it’s horses for courses. But if I gave you capital, Mr. VC, and I’m an LP, the part I don’t understand, if it’s for a VC fund, I have assumptions on the VC returns, which there’s no way in hell you can get to if you have a $2 billion fund. You just can’t. It’s impossible.

I agree with you. I think there’s going to be haves and haves nots. Some firms that are going to raise more and more money. Some firms that will have more difficulty in raising money. I think it will be a case of also DPI, carry, the old benchmark model versus management fees and TVPI, so on your books numbers versus cash on cash or partners that are making their money on management fees rather than making their money on carried interest on profits. I think at some point the music is also going to stop for that.

Some LPs are going to be like, “You know what? I feel I’ve been fooled around on this.” Then the third piece is, I do think you’re going to have more and more the firms that stick to thesis, the Benchmarks of the world. I’d like to put ourselves as chameleon into that world as well, where we stick to our thesis, smaller funds, and really focusing on VC returns, and the firms that go after other asset classes that either magically do really, really well or at some point need to retrench to having different asset classes that they represent.

A little bit like Sequoia did back in the day where they said, “Look, we have an early-stage fund, and we have a growth fund.” The growth fund is for the asset class of growth funds, and the early stage fund is for early stage investing. Then, if I’m an LP, I decide whether I think these guys are really good at all these different asset classes, and I’ll give money to the funds that I want to give to and not give to the funds where I think maybe the performance won’t be as great because there’s no unfair advantage by the specific fund manager.

Bertrand

But you know the game. I’m sure that some are going to say, if you want to get access to the early stage fund.

Nuno

Sequoia will actually do that.

Bertrand

I don’t know, but…

Nuno

No, they do. They change their structure to having one fund to have one structure on top. It’s not a fund even anymore. It’s a structure on top.

Bertrand

Yes.

Nuno

They have all these different things, but then they created this structure a couple of years ago, which effectively looks a bit like a hedge fund on top that you put money capital into.

Bertrand

Yeah. I think that would be the game for many too. If you want access to the best returner funds, you also have to invest in the other gross fund of the family or else you might lose your access to the other early stage funds that are giving potentially better return. I think there will be a gameplay to make sure you can still finance the gross fund. But I agree with you. I have trouble to think it can go to the same returns and not to pick on OpenAI because I think they still have some of the best in class product. I think their bigger issue is the cost. They are way more expensive than competitors. And their edge, their edge is decreasing.

They used to have, I don’t know, one year in advance versus everybody else, and it became six months, and it’s becoming three months, and now you are like, “Is it one month?” That’s for me the biggest question mark for a company like OpenAI. How true is the mode? And there is this fight between private source versus open source AI. That will be a discussion for another day.

Nuno

At some point, LPs also have to figure out… There’s a huge premium that needs to be put in the fact that these investments are liquid. I’m giving money to a fund, and I’m seeing that money back over years. Should I just put it into public equities or just put it into some index fund, Nasdaq or New York Stock Exchange?

If you do the math, at some point, you just need to step back. I think the good news for Venture Capital is that there are still great funds out there having outsized returns and really focusing on the core mission of Venture Capital investing. It’s also great news that there’s a lot of capital to follow through companies, to your point, on the trend of staying private longer without going public, but the markets need to open.

I think the good news is the M&A market seems be opening as we speak, and there’s a lot more and more activity. Just in last couple of weeks, we’ve had incredible deals, the largest deal ever that Google has ever done, which is pretty incredible around cybersecurity. The IPO market still haven’t opened. There’s a huge line of companies waiting to go public, and we keep hearing different views that maybe some of them are waiting, but they don’t have the fundamentals yet right.

The market is so backlogged that you really have to have an amazing story to go public right now otherwise, you’re going to get killed as a stock, so we’ll see. At some point, something’s got to give. Secondary markets are also much more active, but with discounts. There’s all these different dynamics that I think are affecting the fundraising environment for Venture Capital firms.

Bertrand

If you’re a VC firm, you depend on LPs. LPs depend on returns from their investment in VC funds to reinvest in VC funds. If they don’t get the returns, or they don’t get the liquidity, they are not going to be able to put back the money to a new fund because they haven’t got their money back yet.

With that delay over time of exit, the lack of IPO and during the Biden administration, we had also a lack of M&A because there was a lot of restrictions put on M&A from big tech. You just talk about this Google acquisition of a cybersecurity company. What’s the biggest ever for Google? It’s more than 30 billion. It’s not sure that it could be done 6 months ago by Google.

It should be very interesting to see if there is way more acquisitions from big tech happening. This is a huge pipeline for VCs. If you stop selling to big tech, it’s big trouble, just to be clear. It would be a dramatic change, will provide more liquidity.

For IPO, it’s clear the markets are right now very uncertain. I don’t know who would be crazy enough to plan an IPO in the coming three months, to be frank. If you dare to do that, I wish you luck, but I think the next three, potentially six months, are going to be pretty uncertain. It’s definitely not a great time for IPO. I don’t know if you saw the news today, this morning, there was a discussion concerning M&A from the new administration, and they were hinting that they are not going to let any company big on DEI to do easily acquisitions.

Nuno

There’s a lot of uncertainty in the market.

Bertrand

The pipeline that we thought was just reopening might not be so open after all.

Nuno

We’ll see. I think on M&A, I think the floodgates have opened. I think we’ll see more and more. The IPO market, I agree with you. I don’t think we see anything anytime soon, but maybe we’re wrong. Maybe we’re being just pessimistic on that side. Obviously, that influences everything around the table.

The name of the game definitely is distributions. As we’re talking to limited partners, our limited partners, and you, potential limited partners for upcoming funds, the feedback is, “Do you guys have distributions on paid-in? Have you given money back to your LPs or not? What’s the vintage of your fund? How soon did you give distributions, et cetera?”

For example, for one of our funds, for the 2021 fund, we had distributions last year, 2024, and that’s magical. You see even the most institutional LPs, their eyes open up. It’s like, “You’re given distributions already? You’ve given cashback?” That’s great. To your point, cash will ultimately be king.

Bertrand

Yes, now it makes sense, and congrats on doing that. For me, what’s shocking is that for LPs, it’s unexpected. At some point, it’s a real trouble if after 2, 3 years, you don’t start to some distribution. We all know it takes time, especially if you’re more early stage, but at some point, the proof is in the pudding.

Nuno

Shall we talk about best practices for fundraising for startups?

Bertrand

Sure. Best practices for fundraising from a startup founder perspective. I think it’s clear founders need to be strategic on how they fundraise. Let’s start with some thoughts. I would say first thing first, I’ve been surprised and troubled to see founders who sometimes truly believe in their own dreams believe that they have what it takes to do a successful fundraise.

I think in the past, it might be because they remember the old days, they remember 2021, and they don’t realize it has changed. They refuse to acknowledge it has changed. Definitely things have changed. You better be prepared.

It starts with a solid preparation, solid strategy. You want to make sure your docs are in order, your business plan, your revenue model. You have potentially a path to profitability depending on your business model. You want to be very compelling very quickly in your deck.

I think it’s always very important to start very prepared because at the end of the day, you would want to be very efficient in your fundraising. You don’t want to be running that for 9 months or 12 months. As a startup founder, you want to refocus to your business very quickly.

Another piece, obviously, is around crafting a compelling story. It’s a lot about storytelling everywhere, but especially when you are fundraising from VCs, you have to have a big vision, you have to make your employees dream. You have to make your customers dream, and you have to make your investor a dream.

That part is key. It’s not just about the numbers, but you have to have a compelling story. You have to have a unique value proposition. How are you different from others? If you are not in AI, I can tell you better have to have a good story about the why? Why now? Why your stuff is important? Why you are not doing anything related to AI?

Another piece of the puzzle is that you need to be very focused on tailoring your approach to different types of investors. You don’t talk the same way to a Seed Fund, a larger VC, a corporate VC. You really need to know your audience, tailor your pitch to your audience. Again, if you previously fundraise 2 or 3 years ago, you are probably going to talk to different types of investors who have different expectations.

Hopefully, you have help from your previous investor, from your last round to help you understand that. Again, I have seen some who take the decision not to listen. Please be careful. Listen, especially to your close investors who last invested because they should know about what it takes to get to the next level. After all, they have a dozen, two dozen of portfolio companies who are facing the same stuff as you, so they should have a pretty good view about what’s happening in the market right now for companies at your stage.

Nuno

Just to highlight there, I think you’re spot on. If you’re talking to an institutional Venture Capital firm like Chameleon, my own, Red River West with Bertrands, everyone’s looking for returns. It’s all about the big vision. How is this going to become significant? What are the risks and derisks, right? That’s basically it.

If you’re talking to a corporate VC, they might be less interested in the return. They might be much more interested in the strategic value to the mothership. If you’re talking to a Toyota Ventures, they might have more value in terms of what value can we bring back to Toyota out of this. Then family offices are very driven by impact and themes and value system, and it’s probably people that have made some money.

Although they might be thinking about returns, in some cases, they might not be thinking as much about returns, more about, “I want to do something around sustainability because we came from oil.” We want to go now more towards sustainability and sustainable energies and stuff like that. Again, match the speech to the expectations in terms of returns and to the expectations of who you’re talking to. Even different VC firms have different focuses, so be prepared for that.

Bertrand

Totally true. Different firms have some are very generalist. I guess at Red River West, some much less generalist and are very focused. It could be SaaS, it could be AI, it could be Space Tech, it could be hardware. You want to have a speech that’s tailored to their interest. Another piece of the puzzle, obviously, try to get warm intro, try to do some networking. At some point, you might have to do cold outreach, but warm intro goes a long way. That’s one reason it’s never a bad idea to reach out first before you need a fund.

Typically, for instance, if you are doing seed, maybe you talk to some Series A companies. That’s the time when you are ready for Series A, they already seen you, they have talked to you before, they have seen your business plan, and now you are ready for them. That’s something I’ve seen myself as an entrepreneur. Talking to a Series B investor when it’s a bit early, and ultimately, they end up with, “Hey, you know what? It’s too early for us, but let’s talk at the next round.”

It has been a great source of intro for the next round because when it’s time for the next round, they are actually ready. They know your business. They have seen you growing. There is a level of trust you have built showing not just your business plan, but a business plan 2 years ago or 18 months ago and hopefully, you have delivered on that plan. If you have delivered on that plan, it’s creating a lot of trust.

I’ve seen always doing, and we are doing typically at Red River West is comparing with what did people told us at the last round, and maybe they have been early talking to us, and how have they delivered? If they are delivered, the level of trust is incomparable versus coming cold. That for me is sometimes underrated by funders, but reaching out early and obviously delivering on your plan has a lot of impact.

Nuno

Indeed. Showing systematically how you’re evolving. Leveraging the connectivity, keeping the relationship going, and then really highlighting why are you different in the market. Not just vanity metrics, really being able to go under the hood, show fundamental shifts, show that the numbers are really hitting it.

To your point, Bertrand, the most impressive thing is when someone said, “Remember when I talked to you a year and a half ago, and you told me to bug her off and raise my round? Here I am again. I’m raising again, but now I’ve done everything that I said I was going to do, and I’m actually better.” That is just incredible. In particular, if you’re a B2B company, it’s just if you’re annual recurring revenue, all of that stuff has just gone better than you said it’s going to be. That’s like magic.

Bertrand

Yes, 100%. I think entrepreneurs to get that. That one, they need ambitious plan, but they need ambitious plan that they can deliver or even overdeliver. Another piece of the puzzle for me is trying to understand as an entrepreneur, what is best in class? What is top tier? What is first quartile? Because you want to understand in your industry, I don’t know if it’s B2B, SaaS or AI or this or that, you need to understand your competition in some ways.

In competition, in the sense of fundraising. Because if you are an investor, you are going to sell this company. You are going to have this matrix, and you are going to judge companies based on how they are achieving. Is this a top-quartile startup? What are their metrics? How do their metrics compare to not their direct competitors, but their peers?

Sometimes I’ve seen entrepreneurs who have trouble to get their head around. They are just focused on their own business, how hard it is to deliver. They believe that magically they can explain that, “Yes, the numbers are good, but not great, but it’s okay, we can still find financing.” No. If your number are not top quartile, it’s going to be hard. If it’s hard, it means that either you don’t get that financing or you get that financing from tier 2 or even tier 3 investors.

It’s not going to be fun. The valuation are not going to be great. There will be a lot of terms that are not great, and sometimes the run might not even close. I think you have to be very careful, very humble, and understand that it’s a marketplace where VCs are willing to fund some entrepreneurs, but they are going to pick the crop of the crop, the best of the best.

One more tip for entrepreneurs is manage the fundraising process efficiently. You want to have a well-oiled process, and you want to be quick. Target to close in three months, at least to close that term sheet. It might take you 30 days, 45 days more post-term sheet to fully close around. Don’t give yourself six months to find your lead investor and sign the deal. It’s way too long. It’s a lot of distraction, disruption in the business. Step by step, your number are going to suffer.

That would be the last piece, don’t let your numbers slip. It will be big trouble if you spend more time fundraising and step by step. The numbers you have to show degrade. Even if you manage to quickly close, it will not be good for you if your numbers are slipping because for months, you didn’t focus on running the business well.

Nuno

You should listen to Bertrand because he’s probably one of the best, I think, at managing cycles. You always got it right. I invested early in App Annie, and every time he went back to market, he said, I’m going to raise this in whatever X amount of months and he delivered. Which was always shocking to me. We’ll talk about that maybe a little bit in a second on some hacks and some of the best practices to create this fear of missing out that you need to create in fundraising for sure.

Bertrand

Yes. Weeks, not months.

Nuno

You did it in weeks, yes, I know. I remember. I always bet against you, and I was always wrong on the subsequent rounds, so listen to him. In terms of best practices for VC fundraising, if you’re a VC fund or a Micro-Fund, and you’re thinking through, how am I going to best fundraise? Also, if you’re a startup entrepreneur, understanding a little bit how fundraising for Venture Capital firms and virtual capital funds is so different from your own fundraising.

The first thing to take into account is unlike fundraising for startups, actually getting information on the LPs you want to reach out to is not that easy. A lot of these LPs are quite hidden and healthy. Most LPs are not as outspoken as VC funds, so getting information on LPs is very complex.

There’s very few podcasts now where limited partners share around their views. As I mentioned earlier, LPs come under different forms and flavours. The more institutional ones on the top end, the endowments, the pension plans, et cetera. Below that, the multifamily offices, the Fund of Funds. Fund of Funds are funds that focus solely on investing in other funds.

Then below that, you have the single-family offices. I mean, below in terms of the degree of institutional acumen in general. There are single-family offices that operate in a full-on institutional way with very complex portfolio management, et cetera. Then you have very high net-worth individuals and so on and so forth.

The first thing that normally you would do if you’re a startup raising from a VC fund, doesn’t quite apply as well to a VC fund. The information that we would need to gather on LPs is more complex to obtain. Just creating that initial list is actually quite complex. Just creating the list of outreach and who we’re going to talk to is much more complex than it would be for a startup.

The first thing you actually need to first articulate is really what is your fund thesis? What’s compelling about you? What’s the moat? What is unique about what you’re doing?

Again, most VC funds, the complexity is that we are people-driven. We don’t have huge advantages beyond being people-driven. We at Chameleon are again, a bit unique in that because we have a platform that we develop in-house called Mantis, and that tech and AI platform does allow us to differentiate from that standpoint. Most VC firms don’t have tech, they don’t have a product. Their product is them being great at selecting deals and managing those deals and then exiting at the right time.

If you’re a VC fundraising, you have to really have that very nail down, what’s unique about you? Is it some network that you have access and unfair advantage? Is it some operating model advantage in terms of tech, if you do have any tech data? Is it some other advantage that you have in terms of the areas of focus where you have very specialized general partners, very specialized partners that are people that have 20 years of experience in that area, et cetera? That’s the first piece. What’s the moat? What’s the thesis?

The second piece is track record. This is all about the numbers. People are going to be like, “What’s your track record? What stage have you invested in these companies? What are your returns across the funds you’ve done before? If you’re a first-time fund manager, did you do any angel investing? Do you work at another fund? Do you have track record that you can show for it? Do you have some credibility where I can really understand that’s some unfair advantage in how you select deals?”

Deal selection becomes the most important piece of that discussion. Again, if you can’t show the track record, it’s tough. I know there’s been a lot of micro-funds that have been raised in the last few years. If you don’t have great numbers, good luck to you. If you’re a first-time fund manager, and you don’t have anything to bring to the table, either you’ve been a very successful entrepreneur or you have a great gamut of angel investing that you’ve done that has been really good, it’s going to be very difficult to raise at this point in time.

Thirdly, you need to tailor your approach. As I said, there’s different types of LPs. A multifamily office thinks about portfolio construction in a very different way than a single-family office. A fund of funds thinks very differently about portfolio construction than an endowment. The risk that they’re bringing to table is very different.

Try to figure out if the LPs that you’re standing in front of are adequate for you. If you’re an emerging manager, you’re doing a first or a second, or even in some cases, a third fund, understand if that LP is willing to give money to emerging managers. It might be they are not. It might be that they only give capital to fund 3s and fund 4s onwards. They were not going to give money to emerging managers. It might be that their emerging manager program is actually much smaller.

Ask questions is always my advice. Because from those questions, you’re going to get, what’s your typical capital commitment to emerging managers? Do you think through this track record over time? How do you think through that? What value do you bring to me as a VC fund in terms of standing with me through time?

If you’re trying to build a franchise play in venture capital, fund 2, fund 3, fund 4, are these the kinds of LPs that will stay with you through time and also invest in fund 2 and fund 3 if you have great returns? In some cases, they’re not. For example, corporate LPs, corporations that invest in funds, are well known for their strategies change if the CEO changes. If you have a CEO change every 3 years, they might not be in for the next fund with you.

It sounds like great money upfront. It might have a lot of strings attached, as we discussed earlier. Corporate LPs are very focused on strategic value back to their mothership. At some point, there’s a change in CEO, the stock price goes down, and you’re shit out of luck, basically. They no longer can be with you even if you have great returns. You have to think through those things.

Then maybe the things that are maybe a little bit less exciting, but just the process management, consistent updates, keep in touch, the cycles of fundraising are 1–2 years, as I said before, unlike startups, which should be like 3–6 months max. Therefore, being and updating and reporting, addressing things, being in touch, keeping those relationships over 3, 4, 5 years, sometimes is pretty essential.

Streamlining the due diligence process. If someone is really excited about you, having a data room that’s ready to go, figuring out what is in that data room, what is not. Being transparent, but not overly transparent, because honestly, you might be oversharing. There’s also compliance rules around the information you can share and not share with people that are not yet your limited partners. You have to be thoughtful and careful about that.

Then at the end, really figure out how do you get to a close. It’s a funky world because the leads, the so-called anchor LPs, the equivalent of lead investors in LP speak and VC fundraising speak is anchors, are not really a lead. It’s more of an anchor, and you might have several, not just one. Really framing and creating a timeline by which you push them to the table is much more complex than for a startup to get that lead to give them the term sheet. Doing that really well is in and of itself its own hard form.

Then over time, how do I build all these relationships long term and get them nailed so that I make sure that even though this fund of funds that I really want to have on board as an investor in my fund is not willing to come in right now, that I have a good relationship, maybe they’ll come in 2 years or 3 years or the next fund or maybe for a final close.

That’s the other thing that’s unique about VC fundraising, is our funds, we get money, we get investors in, but actually the capital calls are done over several years, but the commitments are also done over a period of time. You do what is classically called a first close with your anchor limited partners, but then you have typically around at least 12 months to do more closes or at least one more close where you get other limited partners on board. The whole notion of cash management, et cetera, is very different than that of startups.

Bertrand

Definitely, it’s on this fundraising from LPs versus fundraising from VCs. It’s a very different game. Maybe another piece that, if you come from the technology side, LPs don’t always talk the language of technology. They might not understand. It’s a really big gap. It’s very different type of people and professionals.

Nuno

Indeed. In some cases, they’re more involved because of portfolio management, portfolio construction. In some other ways, there’s maybe even more distance to what is the role of a VC versus what is the role of an LP. In some cases, LPs are very fundamentally allocators, and the VC is very deeply… in particular for an early stage VC, very deeply, to your point, entrenched in technology. That’s where we make our decisions, the technology, the people, et cetera.

Sometimes there’s this huge gap in terms of communication, where they’re interested in returns and risk-adjusted stuff, and we’re talking to them about why we’re amazing at due diligence, and we figure out the tech really well, and we are great at assessing entrepreneurs, and they’re like, “Cool.”

Bertrand

Yes, it’s a different game. Cool and show me some numbers.

Nuno

Show me some numbers, yeah, whatever.

Bertrand

It makes sense. It’s really a big gap. It’s a different game.

Nuno

Maybe going to closing the deal, how do we get investors to commit and close the round, Bertrand?

Bertrand

At least from what I have experienced on the startup side, it’s definitely key to identify and secure a lead investor and term sheet. Because once you got this first lead investor and term sheet, then you might start to have some real competition with other investors interested to also move immediately, or they know they will lose the deal. Once you have picked one investor as a lead investor, then it’s time to go quickly over potentially allocating, of course, to your existing investors. That would have typically already been discussed, but potentially look for follow-on investors.

Again, you want to keep going quickly. You don’t want to start throwing things down. Typically, you will have talked to some potential investors who are follow-on while you are fundraising. So it should be easy to reach out, explain you have a term sheet from a lead investor and are they ready to get in. Typically, you don’t give them too long to make a decision.

That’s also where it goes back to creating some urgency, fear of missing out. I think it’s really key to move quickly because first, one thing I have experienced is that you never know what might happen next. You might have a business issue, you might have some overall industry issues, you might have some macro issues happening, and sometimes everything can freeze as a result.

You really want to move fast, not take a chance at any step of the process because you never know what might happen tomorrow. I have experienced that type of situation where sometimes in a matter of days, you see the market changing dramatically, investor expectation changing. I mean, this stuff can change fast.

Nuno

An analogous for us in the venture capital world is, get that anchor LP in for that first close or those anchor LPs in for that first close. But maybe even before that—and I think the bar is similar for startups, but maybe even higher for funds—is the first question that’s going to happen is, are the previous investors, the previous LPs to your fund, coming into this fund as well?

So showing great repeatability, where you have a bunch of LPs that were in that previous fund of yours, coming now for the next fund as well is very important, the same as it would be for a startup saying, “Oh, well, I have all these investors, and they’re coming into this round as well.” But I think maybe for funds, the bar is even higher, right? Because in the case of VC firms, you know that sometimes at some point they can’t put more capital in. In LPs, there’s this expectation, if they put money in the previous fund, they should put money in this fund as well.

Bertrand

Yeah, totally. I think for startups, as you say, it can be explained probably more easily. But that’s true. It’s a better sign if you can explain that your existing investors are willing to do their pro rata or even are fighting to do more than their pro rata. That’s always a good sign.

At the same time, you as a CEO, it’s good if you are able to also manage your existing investors because sometimes you might need to make space for a new one, and that new one might not leave enough space for the existing investors. You might have some tension here. Of course, you want to treat well your existing investors who believed in you when it was earlier. At the same time, you don’t want to miss that new investor. So it’s very important to, on one side, make sure your existing investors are going to follow, and at the same time, make sure that potentially they are ready to do a bit less if that could help the new financing.

Nuno

Going back to tactics, the best people at fundraising across the board, I think startups and for VC funds, create this notion of fear of missing out. I’m going to use, hopefully, not too much of a politically incorrect analogy, but you’re the most beautiful girl at the dance. You’re the most beautiful girl at the dance. Everyone wants to dance with you. Creating that fear of missing out, creating that notion that I really want to do the business. I’m a limited partner. I really want to put money in this fund. Otherwise, I won’t have a chance to put in.

I think for us in the VC world, as VC funds raising, it’s more difficult than for startups. I think the world of being the nicest, most beautiful girl at the dance, being a painkiller versus a vitamin are a little bit gone. There are now a lot of offerings in the market, unless you’re maybe an LP from other regions of the world, and you have more difficulty in accessing the best funds. But still, having that notion of creating FOMO is pretty essential. For startups, it’s critical. People have to find the notion of, I should put money to these guys so that they can go to the next level and make it go forward.

Bertrand

Another piece that’s important is that it’s not just FOMO for FOMO’s sake. You create FOMO in order to accelerate a round, close a round, go on with your life as a business. But also you need to be honest because if you start to be dishonest by saying you already have a term sheet when you don’t, that sort of stuff, it’s a very dangerous game. It’s, I think, bad ethics, bad practice.

Step by step, people might hear, might know, or they might even be able to read between the line because you are talking about having opportunities, but you might not have them. Sometimes, VCs are good. They will read between the lines that actually it might be bullshit. Be careful because the minute it moves from FOMO to these guys are bullshit, you lose.

Nuno

Then the next step is getting it in writing. Either get the term sheet, which, as we know, is not binding except for normally confidentiality and/or exclusivity for that term sheet, for the case of startups. For VC firms and VC funds, obviously getting the agreements at the table, getting them closed so that you can then run to a first close at some point or to that next close after that time. But getting something in writing at some point is pretty critical.

Before that, obviously getting the gentleman’s or gentle lady’s agreement that someone says, “I’m in.” That’s the first way to get to that position where people are putting their reputation at the table, and that is true for both cases. Then keeping that momentum going and going and leveraging and going around for other investors, in the case if you’re a startup, or for other LPs, if you’re a VC fund, and making sure that they want to come on board and keeping that momentum going for that close that you’re trying to get to, in the case of a VC fund, for that round to be pulled together if you’re a startup.

Bertrand

I think you make a good point about written commitment, because in some ways, for me, my experience has been obvious. That’s how it works and that’s how life works. Actually, a few times this was forced on us. Basically, we got the term sheet, and you’ve got 24 hours to sign it or 48 hours to sign it. That’s very clear. Of course, you can ask a bit of extension of this and that, depending on how you want to play the game and is it your favourite option or not.

But at the same time, I’ve been surprised that some entrepreneurs have been led to believe stuff, not receiving anything in writing, not having the term sheet, having people talking to them and explain to them why they can’t have the document in the coming days, weeks, but they really love the business and the company, and see the entrepreneurs believing on the dream, basically, eating the bullshit.

No, that’s not how it works. If you have spent 2, 3 weeks with an investor explaining your business, opening your data room and stuff, if they are serious about it, they should be able to move. Obviously, some markets things go slower if you pick your up, for instance. But in the US, things are going to move. If it’s not moving, it’s already a bad sign. It’s a really bad sign.

Nuno

Indeed. What other hacks shall we recommend, Bertrand? I have found you have to figure out, again, the individual. There’s a lot of advice that is given sometimes around the entity. I think your VC fund, again, fundraising, it’s very easy to look at an LP as an entity. Probably the same as a startup. You’re looking at, “I’m talking to Sequoia, I’m talking whatever.” Actually, you’re talking to a lead partner somewhere or a lead originator, someone that’s really the person that’s pushing forward your case, and so figuring out the motivations of that person.

What makes that person successful? What makes that person go to the next level in their own environment, in the organization that they’re in? What motivates that person, and what style of person that is. I’ve had some archetypes of LPs shared with me. I won’t share them today because I put that person on the line for it, but there are archetypes of people.

There might be people that are a little bit more number-focused, a lot of people that may be a little bit more nerdy. There might be some people that are a little bit more relationship-focused, that they want to build really that relationship first before really even moving forward, so figuring out who the individual is, what makes this person tick, what makes this person successful or not is pretty critical in getting the deal done.

Bertrand

Yeah, and making sure you are talking to the right person with the right level of authority. Sometimes if you just talk to junior people, and you don’t see the partners or senior partners, it’s a bad sign. Your stuff is not going to work. It’s important to have the junior people in the loop. But at the same time, you need to talk to the decision maker. You need to make sure they can move things forward. That’s absolutely critical.

But I would say at the end of the day, you need to really focus on the goal. The goal is to have a great business. If you have a great business, if you are good at running your process, you have a data room ready, you have picked your list of investors, you go through them, you spend the time to move quickly, you push enough of time constraints on everyone, explaining by when you want to get to your first term sheet. I think it’s quite reasonable to say it’s a matter of a few weeks, four weeks, for instance. I had a first-time sheet at one round in nine days.

Nuno

Just to be clear, that doesn’t happen. If you guys are listening to this… How often does that happen? It doesn’t. As I said, Bertrand is very good at this. He was very good at this.

Bertrand

Maybe, but another time, it was three weeks.

Nuno

Also very fast.

Bertrand

I’m not sure I did more than six weeks to close a round at App Annie. My point is, you have to have great metrics, you have to have a great team, you have to have a plan, you have to deliver on that. It’s like a project to do that fundraising. We didn’t talk about bankers, by the way. I’ve very rarely used bankers. It’s more used in Europe, but here in the US, it’s not very typical.

I think that you have to play the game well. But again, try to move fast because ultimately, that means you can go back fast to business. For me, that was always something really critical. I took a lot of great pride to make sure that it’s not because I’m running around the fundraising that I’m going to slow down the business. From that perspective, I was helped for sure by my CFO, who was really doing a great job preparing that fundraising, preparing it, managing it, and making sure as a result that the team could really focus on running the business, not just doing the fundraising.

Nuno

Indeed. From our side, our analogy is banks, potentially, but normally it’s private placement agents as we call them. Normally, you need to have a broker deal, a licence, all of that. If you’re trying to raise a relatively small fund, and to be very honest, a relatively small fund in venture capital, from a perspective of private placement agent, it could be as high as 100 or 150 million, which would be already a significant fund for a venture capitalist.

I would say most of the significant large private placement agents won’t work with you. There might be some smaller boutique players that will work with you. Maybe some broker dealers are a little bit smaller that will work with you. But in our experience, it’s been very difficult to work with private placement agents and broker dealers unless you’re a very large player. Because again, these guys, if they’re raising 50 million for a private equity fund, a 50 million allocation for a private equity fund, it’s easier for them to do that than to raise 5-10 million for $100 million fund in venture capital. It’s the same work.

It’s like, if I’m going to do it, I might as well raise 50 because they’re going to be compensated, if they’re broker dealers, by a percentage of the money they raise. They’re obviously interested in raising more, not less. It’s easier for them to work with private equity funds or larger VC funds than to work with smaller VC funds or more right-sized VC funds, I may call it.

Bertrand

Makes sense.

Nuno

Wonderful. In conclusion, today, we went through all the key things you need to know if you’re fundraising. First, what is the current evolution of the landscape for fundraising for startups? The same for VC firms, if you’re doing a VC fund or if you want to understand how the landscape for VC funds. What are the best practices, the strategy, the processes, the tactics, everything for fundraising overall for startups.

Same thing for VC funds and VC firms. What are the best practices that VC funds need to take into account when raising their own money from limited partners? Finally, how do you get investors, both if you’re a VC and if you are a startup, to commit to giving you money? How do you close on these investors? Hope you enjoyed it. Thank you, Bertrand.

Bertrand

Thank you, Nuno.