I’m writing an end-to-end guide on how to fundraise.
But the hardest question is WHEN?!
Pick the wrong time and no amount of process, investor relationships, warm intros, or pitch deck magic will help. You’re dead in the water
Pick the right time… https://x.com/i/article/2107131763361218560
How to raise venture capital, chapter 4: When to Raise
When do I raise?
Of the two questions this guide set out to answer, this is the hardest. It’s also the question founders ask me most often. That was true while I was a partner at YC and continues to be true now at Magid. It's also the question where the two standard answers are both wrong in ways that cost founders real money.
The first standard answer focuses on metrics: get to $1 million in ARR (or 2, or 3, or 10), grow 20% MoM, and the round takes care of itself. It's specific, it's confident, and it's pure fiction. Ask any investor what metrics they tell founders to hit before raising. Then ask what milestones their own portfolio companies actually hit before being funded. The lists won't match. They can't, because no causal link exists between any particular number and a closed round.
I've seen multi-hundred million dollar rounds come together for companies at $200k in revenue, and I've seen companies fail to raise at over $10 million in ARR. From a venture investor's side of the table this makes sense: they're in the business of funding outliers, not companies that conform to a table of expectations. From the founder side it's maddening, because everything you've ever read about startups says metrics matter. And they do. The confusing part is that metrics matter in a specific context (which we’ll get to) and you have to know the context and use it.
The second standard answer is "raise when you can." Accurate, and useless. It's tautological since the only way to find out you can raise is to raise, which is no help at all on the day you're trying to decide. It's also dangerous logic as we discussed at the end of the last chapter.
The honest truth is that you're ready to raise just after the money hits your bank account. One of the best Series As I’ve ever seen was the one that Dan Levine led into Scale AI a couple months (weeks really) after Alex and Lucy founded it. The company was still in YC, had recently pivoted, had some early contracts. But it wasn’t “ready” for an A, at least not by any standard metrics table. Dan made a call based on belief in the market, belief in the founders, a view of the future and fundamentally…gut or maybe emotion. There was logic there, for sure, but also a lot of logical reasons that needed to be ignored. It was, hands down, the right call.
The greatest companies have a habit of breaking set models wide open. But most startups can learn when to raise by understanding what investors are actually evaluating, and how that has changed over the last few years.
What Happened to the Old Timeline
Just behind the question of “when should I raise” is “how much should I raise?” For a long time, the cleanest way to think about that part of the decision was as a horizontal axis running from Promise to Metrics. A company begins as pure promise, just a team and a narrative about the future. Over time it produces data, and eventually the data forms a trend an investor can underwrite. Seed rounds (smaller) lived at the promise end. Series Bs (getting bigger) lived at the metrics end. Everything in between was some blend. Where your round sat on the axis between promise and metrics depended on how long you'd existed, how much you'd raised, and how good you were at telling your story.
There’s still truth in the framework, but in the last few years the entire distribution has been sliding toward the promise end. At the same time, funding rounds have been getting less frequent and, when they happen, significantly larger.
Metrics lost most of their value as a useful standard once AI accelerated the speed of innovation. Numbers started getting ludicrously big, unimaginably fast. Revenue went from zero to $10 million in 18 months, then zero to $100 million, then zero to a billion in revenue in under two years. When one company grows that way, investors can explain it away. When it happens again and again, investors lose the ability to judge what's normal versus exceptional. Worse, getting that judgment wrong is more consequential and more publicly obvious than ever, and no one hates being wrong in public more than investors.
At the same time, technology stopped working as a durable differentiator. Nearly every revolutionary piece of software shipped in the past year was copied within months. That's as true for frontier AI models as it is for SaaS. Open source Chinese AI models are just months behind the developments of OpenAI and Anthropic. Even the capital-intensive stuff gets crowded, just try to count the number of small modular reactor companies.
Without metrics or technology, the only fixed point remaining for assessing a startup is the founder and the team. Backing exceptional founders was always the primary driver of seed rounds. Now it's the primary driver of nearly every round, sometimes all the way through the C or D. Metrics still matter but only as a signal, evidence that you are who investors hope you are and that the future you describe is starting to arrive. They no longer work as a gate, or as a proxy for the underlying enterprise value of a company.
Now that investors have stopped grading on milestones, metrics are just one input among many. This leaves founders increasingly uncertain whether the market is ready to fund them. There is no fixed formula. But most useful answer I’ve found is a framework I call The Decisive Moment.
The Decisive Moment
I'm a hobbyist photographer, and one of my favorite photographers is Henri Cartier-Bresson, who more or less invented street photography. He’d walk through a city, camera in hand, and try to freeze life as he saw it. His work revolved around this idea of the decisive moment (whether or not he actually coined it is a different question). The decisive moment is the specific instant when a photographer chooses to stop time and make a picture. To someone who doesn't shoot, a great street photograph looks like luck. It isn't. Decisive moments come from planning, positioning, and action.
Look at the anatomy of one of his famous frames. Cartier-Bresson chose his camera and film before walking out the door in the morning. They were fully in his control. Then he’d walk and find a spot where he thought a moment might happen. Maybe a well placed railing and stair, a group of kids playing, a door just so in the light. He didn't build the scene, he recognized it and positioned himself. And then sometimes he’d wait, and a cyclist might flash through the frame where at just the right moment, he released the shutter.
Fundraising works the same way, and I mean that as more than a metaphor. There is no critical path to a round. No deterministic sequence of numbers or investor emails, however flattering, triggers a term sheet. What the best founders do instead is exactly what the photographer does: they track the market constantly, they keep updating their mental model of where they sit in it and what investors are currently thinking, they know when the odds have swung in their favor, and then they actively choose the moment to raise. The round is not something you wait for. It's a shot you take.
Getting the decisive moment right requires three elements over which you have varying degrees of control:
1. The first element is the right business, and this one is largely in your control. Your startup is not an income statement or a corporate charter. It's a story that validates your particular view of how the world is changing. That's what separates a startup from a corner store, which is a wonderful thing to build but not a bet on a phase change in the world. Venture capital only makes sense as a funding path for companies that must (1) scale massively ahead of their ability to fund growth from cash flow, (2) companies with a shot at becoming almost inconceivably large. You've already convinced yourself, your cofounders, your employees, and your current investors that your company satisfies both of these conditions. That's the camera in your hand.
1. The second element is the right reason to raise, and this one is partly in your control and partly a function of the market. Your reason is the narrative core of the raise, the interface between what you're building and what the market wants to see. It will shift over the life of your business as both change.
1. The third element is an investor with a mind prepared for your story, and this one is almost entirely out of your control. At least, it is out of your control in the sense that you can’t create one. You can’t force an investor to believe in your market or your approach. What you can do is find these investors before you're fundraising and influence their thinking over time, through dialogue, in low-pressure settings, months before any pitch.
I first got a sense of how this worked during my own seed round. My first gatekeeper at Sequoia, Greg McAdoo, told me flatly that tutoring, my market, was too small to be interesting. We weren't in a pitch. We were standing in a circle of people at YC one night, having a frankly silly side conversation, and I was able to say, actually, it's a $6 billion market that we know of, and bigger beyond that. He said: wait, what? That led to a series of interactions with him and with his partners to convince him that the market was worthwhile, and that we were the ones to win (spoiler it kinda wasn’t and in the end we didn’t).
If I had walked into Sequoia's office and formally pitched them on the size of the tutoring market, they never would have taken the meeting, and if someone there had, the skeptical half of that person’s brain would have been running the whole time. Prepared minds are built in casual conversations.
When the three elements come into balance, that's your camera, your frame and light, your subjects.
Explaining how all this actually works, how to measure it, how to make a decision well, that’s going to take a bit more time.