4 Fundraising DON'Ts

Fundraising Part II: Fundraising DONT's

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Daniel Faierman & Chuck Cotter
June 26, 2025

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Daniel Faierman is a Partner at Habitat Partners, an NYC-based early stage VC firm focused on pre-seed to Series A investments in the consumer and software ecosystems. Learn more about Habitat Partners on their website or notion page. Daniel has invested in numerous startups and previously operated and invested at organizations including PepsiCo, AB InBev, VMG Partners, and Selva Ventures. Daniel was a former Yale tennis 🎾 player & completed his MBA at the Stanford Graduate School of Business.

Chuck Cotter is a Partner in Morrison Foerster’s Emerging Company + Venture Capital practice group in Denver, with experience in the consumer products space, including food, beverage, personal care, beauty, and fashion. He has represented such companies and funds in over 200 🚀 consumer financing and M&A transactions. Chuck was a rugby player at Vassar College and completed his JD at Columbia Law School.

4 Fundraising Don’ts

We hope you enjoyed last week’s post on liquidation preferences, our highest engagement post to date! Before we hit chapter 3 of TSP (which will start with anti-dilution mechanisms), we wanted to return back to fundraising strategy outside of term sheets. The below is a short post outlining some basic principles Daniel picked up on during years of exposure to endless pitches.

There is no winning formula or set of principals that guarantees success in fundraising. Some investors look for exited founders; others seek out young scrappy first time founders. Some investors love hyper growth (even at the expense of wild burn); others look for capital efficiency or a balance of both. As a founder attempting to raise, it can be frustrating trying to position oneself to be a perfect match for each prospective investor (founders aren’t chameleons after all - they are who they are). So while we can’t provide a ‘one size fits all’ blueprint, we can share behaviors that we recommend against. Stuff that “irks” us. Some may disagree on few of these takes… which is cool!

4 DONT’s

#1: OVER-FOMOing

Nothing is worse than a founder who leads with FOMO and falsified urgency. Investors are eager to learn about a company’s story, what makes it unique and exciting, traction to date, etc. Nothing takes the air out of the room more than when a founder who an investor is excited to meet for the first time opens with some variation of “we have term sheets and are moving super quickly so need you to decide in the next day or two….” before even telling the investor about their business. It’s an auto pass for most sophisticated investors who won’t be fomo’d into a deal. It’s also why we’ve rarely ever participated in YC deals!

With genuine term sheets at one’s disposal, there are effective, respectful ways to communicate. Founders should spend the majority of a first call talking through their business and getting to know the fund they’re speaking with - towards the end of a call, it is completely appropriate to update the investor on your process and share non-confidential details on term sheets, allocation, etc. But opening a call with a FOMO strategy is a very bad idea. It signals, “I don’t really want to get to know you and I don’t truly respect you or your process.” The AI era has driven a surge in this behavior as deals often move extemely fast.

Conversely, there’s actually something intriguing about a founder who is quietly crushing their raise while barely talking about the momentum. After a solid pitch, very quickly/casually slipping in that you have a term sheet can leave a very strong impression. An investor might leave the call thinking: “hmm this founder could have FOMO’d me at the beginning but they were so confident in their business they weren’t even going to bring up fundraising momentum to get me over the line like so many others.”

#2: Focusing on who instead of what

Brian Sugar dropped an entire post on this dynamic a few months and I think it’s really well done. A few main quotes that sum it up:

“The most superficial people obsess over who knows whom. The most successful focus relentlessly on what matters: ideas that create value.”

“Those who create genuine value attract opportunities. Those who rely on signaling spend their lives chasing validation that never quite arrives.”

We’ve all name dropped at times. It’s comfortable to establish mutual friends/connections and in many cases appropriate. When it comes to pitching, 99% of the focus should be on delivering a clear vision for what the future looks like and why you’re best positioned to make that vision of the future a reality. Not much more. Spending too much time name dropping angels, investors, advisors, advocates, mentors, etc undermines credibility.

#3: Exaggerating objectively “auditable” traction

Integrity is a crucial part of any relationship and the founder-investor relationship is no exception. Any data point that is objectively auditable needs to be taken seriously. Exaggerating is dangerous. If a founder tells me they’re at $600k in ARR and I don’t see $50k in MRR flowing into the P&L because a material portion is contracted (CARR) as an example, it feels misleading. I recently was diligencing a SaaS business that identified two well-known customers front and center in their company overview memo. I conducted a a call with each company, curious to understand how the SaaS tool was being used... if it was effective, etc. I quickly found out that each company was still onboarding the product and had barely even used it. I’ve witnessed similar cases with CPG founders when it comes to sharing retail authorizations (regional pilots in a few dozen stores vs. a national rollout = very different traction points). This kind of behavior drives doubt in the founder’s integrity. Set an honest and transparent standard up front… stay consistent.

#4: Asking for follow up intros from rejectors

I wrote an entire post on this a few months back that nabbed ~10k views. Re-sharing here:


I applaud founders that build relationships with VCs in advance of their fundraises at times when they don't actually require new money

Grinding a few of those conversations out monthly while managing the biz shows a lot of hustle

And many VCs do appreciate having "agenda-less interactions" and adding value when possible without anything expected in return (wild lol)

Many of the best founders:

1/ build relationships early
2/ include prospective investors on investor updates & communicate as they deliver on milestones
3/ go out for capital with plenty of runway at times when they don't "need it"
4/ are far more likely to successfully raise as a result of following steps 1-3

(Easier said then done)

While the above sounds nice, most founders are meeting a bunch of new investors for the first time during raises... how it works with time constraints... and you will likely get some "NO"s

My take:

If you are a founder and you get a "NO" from a VC during a raise, I recommend AGAINST asking that VC for direct intros to other VCs as your first move unless you got far in the process and are very confident that the VC thinks quite highly of your company depsite passing (and this is a hard judgment call as most VCs try to pass in a "nice" way irrespective of how they really feel... and if a VC that rejects you is truly pumped about your company, they'll often voluntarily make intros for you anyways)

Why avoid doing this?

VCs are often not excited at the prospect of investing in another VCs passes

While VCs are aiming to build their own independent conviction and develop a contrarian view at times, there is immediate negativity bias when receiving an opportunity that another VC passed on

I may have enough intrigue to run my own diligence process on a company before chatting with other VCs (removing some pre-conceived bias)... but eventually I'm weighing the logic for why a VC that I respect passed on an opp that they shared

... and so I'll learn something negative about the company even if I didn't discover it during my own diligence process. Doesn't mean I'll definitely pass, but doesn't help the founders case.

Hypothetically, if I received the intro from someone who has no formal rejection history with the company, then I would enter the process with a blank slate & without potential negativity bias.

All to say, I will continue to make intros for founders that I both back & pass on. I enjoy helping.

But I always try to be honest with the VC on the receiving end as to why I have conviction or a lack of conviction in a company I am making an intro for...

📒 Takeaway: for intros to VCs ... try to go through VCs that have backed you already, founders in the target VCs portfolio, mutual connections, and cold outreach, etc, before you consider asking for an intro from a VC who passed on you... might seem initutive but not what I see consistently and it could put you at a disadvantage heading into a new pitch...

If you enjoyed this article, feel free to view recent prior articles:

Ongoing Term Glossary

Automatic Conversion: in the context of convertible notes (or SAFEs), a clause that triggers a convertible note to automatically convert into equity at maturity

Bridge Financing: when investors agree to provide temporary financing to secure a company’s cash balance before the company raises their next priced round - aka the bridge that gets you to your next priced round.

Capped Price: conversion price per share awarded to noteholder (or SAFE holder) if investor exercises valuation cap

Change in control: a significant shift in the ownership or control of a company, often triggering specific rights or obligations for investors (M&A most commonly)

Clawback provisions: provisions that give the company the right to buy back vested shares at the original issue price or at fair market value after dismissing an employee under defined circumstances (leaving for a competitor, severe misconduct, etc)

Co-Invest: triggered when a fund raises “one-off” new capital from LPs/investors (as opposed to pulling from existing permanent fund) to unlock ability to execute an investment; associated management fees and carry (if any) typically flow back to the fund or individual who raised the co-invest capital. Funds often give major LPs prioritized “co-invest“ rights, which gives such LPs the first rights to participate in the co-invest opportunity before others.

Comparable Company Analysis: a valuation methodology that entails identifying comparable companies and transactions to the company being valued as a means of deriving multiples that can be used to generate a landed valuation

Confidentiality: prevents the startup from disclosing the terms of a term sheet to outside parties (i.e., other investors, startups). This enables both parties to negotiate in good faith.

Convertible Note: a debt instrument that can be converted to equity based on the occurrence of certain events (most commonly during a priced equity financing round).

Conversion: convertible notes (and SAFEs) automatically convert into equity if certain triggers occur. The most common trigger that leads to the conversion of a convertible note (or SAFE) into equity is a priced equity financing round

Debt repayment terms: in the context of convertible notes, defines specifics associated with principal, interest rate, maturity date, and default provisions.

Definitive documents:  the legal contracts between the investors and the company that detail the terms of the transaction and are drafted by a lawyer

Dilution (D): losing a portion of your ownership as the company sells equity to investors

Discounted Cash Flow Analysis (DCF): a valuation methodology that entails forecasting the future cash flows of a business and discounting the cash flows by a determined cost of capital to derive an enterprise value

Discount: a discount is a term awarded to the convertible noteholder (or SAFE holder) that drives a reduction in the conversion price per share that they are awarded during a qualified financing. Discounts typically range from 10-30% with 20% being the most common.

Down Round: when the pre-money valuation of a future financing is lower than the post-money valuation of the prior financing; often seen as a negative sign for the company

Double-trigger: requires two events to occur to accelerate the completion of your vesting. The first trigger is the acquisition, and the second trigger is the founder or employee getting terminated by the acquirer without cause or good reason in a specified period (typically one year)

Employee Option Pool (EOP): stock that is reserved for existing and future employees to compensate, retain, and motivate workforce

Equity conversion terms: in the context of convertible notes, defines the specific event(s) that triggers conversion of debt to equity, the formula used during conversion (considering the impact of the valuation cap and/or discount – to be discussed), the type of equity received upon conversion by the note holder (common vs. preferred equity), and any associated rights the new equity holders will get after their convertible note is converted to equity (voting, dividends, etc).

Exclusivity: often referred to as a “no shop,” this provision locks parties into negotiating only with each other for a defined period (i.e., 30-60 days)

Exercise (options): buy options at the strike price

Fund Model: a forecasting exercise that a VC conducts to project what a successful fund will look like in terms of returns from each investment. VCs typically build a pathway to 3.0x net DPI

Indifference point: the price per share at which the noteholder or SAFE holder is indifferent between exercising the discount or valuation cap

Interest Rate & Payments: convertible notes often feature interest rates. Unlike a traditional loan, startups rarely pay the interest in cash to the convertible noteholder periodically. Instead, convertible notes accrue interest until the time of conversion.

Lead Investor: primary investor(s) (co-leads can exist) in a funding round that set terms and typically are writing the largest check(s); often take a board seat

Legally nonbinding: refers to the nature of term sheets. A signed term sheet does not legally mandate a deal be completed

Liquidation Preference: is one of the rights that makes preferred stock more valuable than common stock and a large part of why investors agree to purchase the right to preferred stock (i.e., SAFEs or convertible notes) or purchase preferred stock directly during financings. Liquidation preference is the legal entitlement to receive a pre-determined portion of a company’s value in the event of a sale or liquidity event before the holders of common stock (i.e. the right to get paid first in an exit).

Ownership (O): the % of a company a shareholder possesses prior to or post-closing of a financing

Participation (Liquidation Preferences): is the right of a preferred stock to participate in remaining acquisition proceeds (on an as-converted to common stock basis, along with common stock) after the initial multiplier liquidation preference is satisfied. When preferred stockholders have a participation preference it’s called “double dipping” as preferred stockholder enjoys preferential return of capital in liquidation preference and then enjoys pro rata share of remaining proceeds. Participation can be capped (limited to a certain multiple) or uncapped.

Prepayment: in the context of convertible notes, payment of the principal and accrued interest by the startup before the note matures. This is generally only allowed if there is a majority of supermajority vote in favor of prepayment by the noteholders.

Major Investor: refers to a participating investor in a financing that surpasses a certain check size threshold, unlocking certain rights. I.e., “all those who invest over $500k will be deemed major investors and shall receive information and pro rata rights”

Maturity: the date at which the debt (plus any accrued interest) is due for repayment. This is typically 12, 18, or 24 months from the issuance of the convertible note. We will talk about conversion momentarily but the norm for a convertible note is that it has converted into equity prior to the maturity date

Maturity Extension: in the context of convertible notes, this entails moving the maturity date back. A common alternative to repayment is for the company and noteholders to agree to an extension on the maturity date of the note

Multiple: a ratio that is calculated by dividing the valuation of an asset by a specific item on the financial statements

Multiplier (Liquidation Preferences): Multiplier refers to the multiple on the original price per share of a class or series of preferred stock an investor is entitled to receive before others get paid. A 1x preference means getting paid one times the original investment, a 3x preference would mean getting paid three times the original investment back before the next most senior preference is paid.

Multiple on Invested Capital (MOIC): compares the value of an investment on the exit date to the initial equity contribution

Non-priced financing: financing round in which founder and VC do not explicitly set a share price and thus do not set an associated pre-money valuation (i.e., convertible notes, SAFEs)

Option pool: an amount of common stock primarily reserved in the cap table for future employees (in certain cases, options can be pulled out of the option pool for existing employees/founders as well)

Optional conversion: in the context of convertible notes, entitles the noteholder to convert their note into equity if desired if the note is still outstanding on the maturity date

Post-Money Valuation (PO): the valuation of the company after the round size is invested by the VC(s)

Pre-Money Valuation (PM): what the investor is valuing the company at TODAY, prior to the investment

Priced round/financing: a round of financing in which the valuation and price per share of a unit of stock being sold is officially determined (as opposed to a SAFE or convertible note in which case the valuation is left officially undetermined)

Price Per Share (PPS): the cost of acquiring a share of company x, typically determined by pre-money valuation and fully diluted shares outstanding prior to close of financing

Principal: in the context of convertible notes, the amount of investment provided by the noteholder (investor) to the company through the convertible note. In an unfortunate scenario where the note never converts to equity (we will discuss this), the principal (plus any accrued interest) is what the company owes the noteholder (unless nuanced legal terms dictate otherwise). Assuming the note does convert to equity (the norm), the principal (plus any accrued interest) is the quantity used to calculate how many shares the note holder will receive upon conversion into equity.

Pro rata rights: give investors the right (but not obligation) to participate in future rounds of financing to maintain their initial level of percentage ownership in the company.

Pro rata on a dollar-for-dollar basis: gives the investor the right to invest an amount equal to or less than the amount invested in their first round à VC Z invested 200K in the seed round and has the right to invest 200k in the Series A

Pro rata on a fixed sum basis: least common, investors get the right to continue investing an amount as agreed upon that is decoupled from the investment amount. VC Z, who invested $1M in a seed, negotiates pro rata rights up to $700K - they will be able to invest up to $700K in each subsequent round of financing.

Pro Rata ROFR: gives particular investor(s) the right to another investors voluntarily waived pro rata in a future financing  

Qualified financing: in the context of convertible notes/SAFEs, the round size of an equity financing typically must meet a certain dollar threshold to trigger conversion into equity.

Repayment: in the context of convertible notes, the process of paying back the debt (plus any accrued interest) due to noteholders

Restricted Stock: company stock given to employees, usually as a bonus or additional compensation; does not have a strike price unlike options; usually awarded to company directors and executives and is subject to vesting

Round Size or Investment Amount (R): how much capital the founder is raising for the financing or VC round

RSUs: refers to an agreement by a company to issue employees shares on a future date. One RSU is the right to get one common share. RSUs, like options, are also subject to a time-based vesting schedule and can be trigger based; however, RSUs don’t have a strike price and are instead released directly to the recipient after vesting without any need to “exercise” or buy them; typically awarded to lower level employees than restricted stock

SAFE: an agreement between an investor and a company that converts into equity in the next financing round if certain conditions are met

Seniority (Liquidation Preferences): refers to whether preference is senior, junior or even (pari passu) with other preferred stock. Senior preference means having a first-tier liquidation right, junior preference means having a liquidation right that is paid after the senior preferred and pari passu means preference amongst different preferred stock is the same time.

Single-trigger: states that only one event must occur to accelerate the vesting of your equity. If the company is acquired, you gain complete ownership over all your options

Stock options: incentive mechanisms granted to employees, advisors, and consultants. Employees joining a VC-backed startup typically receive an option grant, which allows them to acquire company common shares in the future at a certain price by “exercising vested options”

Strike Price: the predetermined price an employee pays to exercise (aka purchase) their stock options and turn their stock options into actual shares of the company owned outright. Tax regulations (IRS Section 409a) require options grants to have a strike price equal to or above the fair market value of the underlying company stock on the date that the option is granted

‘Success disaster’: employees run the risk of being harmed financially for building a succeeding business that has grown in value significantly

Uncapped Note/SAFE: a convertible note (or SAFE) that lacks a valuation cap

Up Round: when the pre-money valuation of a future financing is higher than the post-money valuation of the prior financing; often seen as a positive sign for the company

Valuation: the process of deriving an enterprise value for a company

Valuation Cap: a valuation cap is an investor favorable terms that puts a ceiling on the conversion price at which a convertible note or SAFE would convert into the equity security sold at the qualified financing.

VC Valuation Method: a valuation methodology that entails projecting a company’s exit value in the future and a VC’s required MOIC in order to back into an implied valuation and ownership level at time of investment (starting with the future and backing into the present)

Vesting: the process of gaining ownership over granted stock options

Voluntary conversion: in the context of convertible notes, gives the investor (noteholder) the power to convert into equity whenever desired (even before maturity) under specified details, negating any prepayment potential

Warrants: when issued/contracted, give the warrant holder the right to buy a certain number of shares of the company’s common or preferred stock at a predefined price over a specified period

PM + R = PO ➡️ the pre-money valuation plus the round size = the post-money valuation

PO – R = PM ➡️ the post-money valuation minus the round size = the pre-money valuation

PM / FDSO = PPS ➡️ the pre-money valuation divided by shares outstanding = price per share

R / PO = O ➡️ round size divided by the post-money valuation is the amount of ownership acquired in a financing by participating investors

D / PO = Daniel’s O ➡️ Daniel’s investment divided by the post-money valuation is the amount of ownership Daniel is acquiring in a financing

Fundraising

Rule #1: Communicate early and consistently. Goal: build long term relationships with a roster of investors before you kick off a process.

Rule #2: Ask for help. The only way to get maximal value out of your cap table is by asking for help. Especially when times are tough, great investors can potentially be the difference between make or break.

Rule #3: Keep knocking. As hard as it is, keep communicating with rejectors and make them aware of your progress.

Dont #1: OVER-FOMOing

Don’t #2: Focusing on who instead of what

Don’t #3: Exaggerating objectively “auditable” traction

Don’t #4: Asking for follow up intros from rejectors

Is there a topic you’d like us to cover? Don’t be a stranger! Ever want to dive deeper on a topic in VC Investing or Law?

We can be reached here:

Daniel Faierman ➡️ [email protected] 

Chuck Cotter ➡️ [email protected]

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✍️ Written by Daniel Faierman and Chuck Cotter 

Disclaimer: The information provided in this entry does not, and is not intended to, constitute legal or investment advice; instead, all information, content, and materials available in this entry are for general informational purposes only.