For companies that elect to raise venture funding, it might seem like there is little point trying to ‘time’ the fundraise. After all, you raise money when you need more of it, right? But in reality, there are multiple benefits to picking the right moment to start fundraising. A well-timed fundraise maximises your leverage in conversations with investors, and lets you approach the process methodically rather than scrambling to put a deal together at pace.

HSBC Innovation Banking spoke with Graham Paterson, founder of property tech startup Jitty, and Eva Dobrzanska, MD at consultancy Fundraising Playbooks, to understand whether founders really can ‘time’ their fundraise, and how far timing might affect the cash, and the terms, that might be on offer for startups.

Venture capital (VC) is a notoriously secretive industry. It’s often hard for founders to determine which funds are actively deploying capital, and when a fund might be ‘out of the market’. But mapping the way capital is distributed over the course of a fund’s lifecycle can inform a founder’s approach to a pitch.

Founders should pause to reflect that VCs – at least, General Partners in VC funds – are usually pretty good fundraisers themselves. VC money comes from specific funds, which are raised from limited partners (LPs), often other financial institutions such as sovereign wealth funds, pension funds or even non-profits. In years past, most VCs would adhere to something like a seven-year fund lifespan, meaning the partners would seek to return their LPs’ money (preferably making them a strong return on their investment) seven years after the closing of the fund. Nowadays, “most funds operate on a 10-year timeline,” says Eva.

Announcements and press coverage of new funds will usually include valuable information on the fund’s thesis, as well as details like the average investment they plan to make and the number of portfolio companies the firm hopes to invest in.

This is all helpful information for founders, but again, timing your outreach matters. “I’m always a bit sceptical of pitching a VC that’s just announced a new fund,” says Graham. “I tend to assume you’ll just be lumped into a big bunch of cold pitches with hundreds of other companies. I’ve tried to build new investor connections for Jitty on my own terms, not just because there’s a new pot of money out there.”

Sealing a successful funding round is often a matter of psychology as much as the hard numbers you can showcase. Graham and Eva both highlight the impact of FOMO (fear of missing out) in driving investment decisions. “It’s always interesting to see investors that might have been reluctant to put the first term sheet out to a startup jump on the bandwagon when that first term sheet is secured,” says Graham.

One way to accelerate the conversation with a VC is to use a warm introduction, usually from a founder who’s worked with the fund – or, ideally, the relevant partner you’re reaching out to – before. “I can’t overemphasise how important a warm intro is in helping you cut through the noise and get a positive reply from an investor,” says Eva. “They don’t necessarily need to be from a portfolio founder: they might be from an advisor or mentor, or even from a large customer with strong brand recognition.”

As with any industry, there are hierarchies in the VC fund landscape. Raising from a prominent fund with a storied history of investing in the very best tech companies is traditionally seen as the strongest market signal. But are the Tier 1, billion-dollar funds the be-all and end-all? Could smaller funds confer different advantages?

“The brand of a Tier 1 fund does make a difference to your credibility, with customers but importantly your team as well,” thinks Eva.

While there are solo-GP venture firms out there, most VC firms are composed of partners, principals (who can usually lead deals), and associates or analysts. It stands to reason that a conversation with a partner will be the best way to get a fast process and a quick term sheet, as they are able to make more decisions autonomously. But an associate’s job is to cover the market and have as many conversations with founders as possible, so they are often the ‘front door’ into a VC firm.

What difference does that make for a founder? “You’re conscious that if you’re talking to an associate, you’ll have to get them excited about your company, but also motivated enough to champion you as a potential investment to the relevant deal partner,” says Graham. “That means you might need to tailor your pitch slightly, helping them frame the story for their next investment committee meeting.”

Startups are naturally trying to grow as quickly as possible. But the majority of early-stage companies will have stronger and weaker periods, and fundraising when your metrics aren’t looking at their best might decrease your chances of getting traction with investors.

“It isn’t about gaming the system: it’s simply trying to come at a funding process from as strong a position as possible,” says Graham.

The same principle also applies to your own finances when you begin your fundraising process. What’s an ideal amount of runway to have in the bank when you kickstart investor conversations? “If you can start the round when you have around a year of cash left, that gives you the time to have a good crack at it, and you can always return to the market later if you don’t get to a breakthrough in that first phase,” says Graham.

Often, startups seeking VC funding won’t yet have reached breakeven. Operating at a loss isn’t a dealbreaker but being able to show investors you’re burning cash at a sensible rate is helpful, suggests Eva. “A typical burn rate in a pre-seed or seed company is between £15k and £25k per month. Cash burn at this level indicates to investors you’re scaling in a fairly controlled way, increasing their confidence.

The frustrating and bewitching thing about a fundraising process is that there are no hard and fast rules for success. It’s impossible to say what email subject line will make a VC partner reply and book in a pitch meeting on a given Tuesday.

But investors will always be interested in speaking to the most interesting and innovative companies out there. “Don’t be afraid to take the big swings in your pitch, and don’t be afraid to use some of that competitive tension between VC firms to your advantage,” reckons Graham. It’s worth remembering that finding a great founder, building a great company, is the ultimate prize for investors.