Startups can be an exciting adventure, full of ups and downs, twists and turns, and unforeseen obstacles. One of the biggest challenges that startup founders face is securing funding to bring their vision to life. However, even after receiving a term sheet, the need to continue fundraising is crucial.
As the saying goes, “don’t count your chickens before they hatch.” This means that you should not assume that something will happen until it actually does. In the context of fundraising, it’s important not to assume that a deal is done until the money is actually in the bank. But even then you need to be careful.
This week we saw the second-largest bank failure in US history with Silicon Valley Bank (SVB) being hit by a liquidity crunch forcing regulators to step in and take control of the bank. SVB got hit by a bank run causing panic for people to pull their money out as most people were only insured up to $250k. SVB was the bank of choice for many startups and VC’s so we will see over the next few weeks just how big an impact this is going to cause.
If you don’t control all of your funding and you don’t have all of your funding insured you need to have a backup plan. Some investors fund startups with installments as the startups reach milestones or simply as they unlock liquidity, in either of these scenarios as a founder you are at risk of external factors outside of your control.
But sometimes even before getting the money some founders think that they can relax after getting a term sheet. Receiving a term sheet is a significant achievement for any startup founder, it means that investors are interested in your idea and see the potential for growth and success. However, it’s important not to become complacent or assume that the deal is done. There are many reasons why deals fall through, including changes in the market, internal conflicts within the investor group, or simply a change of heart from the investors.
For this reason, it’s important to continue fundraising even after receiving a term sheet. This doesn’t mean that you should start from scratch and seek out new investors. Rather, it means that you should continue to nurture relationships with existing investors and keep them up to date on your progress. This will help to build trust and confidence in your startup, and make it more likely that the deal will ultimately be completed.
Continuing to fundraise also allows you to explore alternative financing options. For example, you may be able to secure additional funding from a different investor or take advantage of crowdfunding platforms to raise capital. By exploring multiple avenues for funding, you increase your chances of success and reduce your reliance on any one investor or funding source.
It‘s hard to say just what the odds of something falling over are in the last minute of negotiations but it is better to be safer than sorry. Because you are negotiating the future of your entire company it makes sense not to put all your eggs in one basket for both the investors you are trying to get money from and even for the money once you have access to it.
