Blog by Aaron Harris
In any negotiation, leverage is the pressure that you can bring to bear on the other party to achieve your goals. While leverage is never the only thing that matters, it is a powerful and generally misunderstood tool.1 It is critical to understand when and where to use leverage while fundraising. However, I’ve noticed that many founders – and most first-time founders – don’t think systematically about leverage.
Though you can generate leverage from a number of different sources, fundraising leverage generally comes down to effectively using an investor’s fear of missing out on an outlier company. Because most venture returns are driven by a tiny number of companies, investors know that they need to invest in those companies in order to make money.2
The trick, then, is convincing investors that your company will be one of those outliers. The way you do this varies slightly by stage, but always comes down to a mix of traction, team, vision, market opportunity, and product. Founders who combine these elements in a way that makes their upcoming success appear inevitable generally have more leverage while raising money.3
I used to think that founders were limited to these five elements in raising money, but in running our Series A program, we uncovered a way to materially influence the leverage a founder has in any round: process. Running a tight process while fundraising is a deceptively complex task. On the surface, it seems very simple, but without conscious focus, founders invariably screw it up.
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