Unwinding the trauma of a failed fundraise
In case you missed it, I participated on a panel with Purpose.jobs last week, in which we discussed mental health in the workplace. Click the link to read a synopsis and check out the panel in its entirety if you’re interested.
This week I wanted to tell a story about a coaching session I had with a founder, just prior to him beginning a fundraising process. As with any time I speak about my work, the names and details are all changed to protect confidentiality, but the essence of the story remains intact.
Unwinding the trauma of a failed fundraise
I worked with a founder recently who was about to begin the process of raising his series B. . His company was doing well, its unit economics outstanding and its growth rate solid. The team he’d put together was incomplete, but the leaders he’d compiled thus far were top notch. The opportunity was massive. All his metrics were up and to the right, and he was worried he was going to fuck it up.
I asked him why, and he said he had tried and failed to raise money the year before. He’d told investors the story and they’d been interested. He’d had partner meetings with top tier VC funds and rapid diligence processes. All the signs of a fundraise that’s going the distance. But then, even though it seemed to be on track, the firms he was talking to passed, one-by-one, on the deal.
The worst part, he said with pain in his eyes, was that nobody really gave him a good reason why. “Too early,” they said. The investor equivalent of “it’s not you, it’s me.”
Failed fundraises are traumatic. It’s not for nothing that people refer to a founder’s company as “their baby” -- founders pour every ounce of their lifeblood into their company for years in an effort to help it grow up. And then, when it finally comes time to introduce your baby to other, smart people, who are supposed to be experts at selecting which babies are the best positioned to thrive, when those people tell you your baby isn’t worth their time, you tend to hold onto that experience. It leaves an impact like any other trauma.
Getting right back to work
As a “good CEO” does, the founder went back to the drawing board and broke the story he had been telling investors and himself into its core elements. When he was honest with himself, he knew that there were some critical issues that needed fixing if he was going to scale. So, focusing on what he could control, he and his team spent twelve months ruthlessly fixing those issues. He’d done everything perfectly. The situation had been hard, but he’d gutted through it, learned what there was to learn, iterated accordingly, and for the last year everything had gone to plan.
And yet, now that he was preparing for the growth raise, he found himself hesitating.
What if it turned out the same as last time? What if, no matter the progress his business had made, he himself simply wasn’t cut out to raise a series B?
The founder’s failed fundraise had provided valuable data about his business, which he had immediately put into action, and helped steer his company to a remarkable transformation the year prior. But the driver of that positive change had also been traumatic. While “getting back to work” can mask trauma temporarily, it doesn’t make it go away.
How trauma works
The oldest part of our brains, the reptile part, deals with trauma in a way so highly adapted to survival it hurts. As Carl Buchheit explains in his book, Transformational NLP:
The main driver for the creature (reptile) brain is fear, with the goal of survival. It does not want to change anything that has become associated with the experience of having survived. The creature brain creates associations rather than meanings. It generalizes and jumps to conclusions based on rough similarities, initiating preprogrammed and automatic muscular and physiological reactions such as the fight-or-flight response (Van der Kolk, 2014). In its natural processing, it learns to associate survival with situations and conditions that threatened survival but did not actually lead to death. This association has ironic and tragic implications for human beings.
For this founder, planning a second attempt at a fundraise, his nervous system was “helpfully” reminding him of how dangerous fundraising was. His reptile brain recognized a threatening situation it had survived in the past, and sent up the same red alert.
Our brains are wonderful tools, but the way we deal with trauma, highly adapted for avoiding tiger attacks, can cause us to relive the same painful situations over and over again. It can also sabotage high performers with failures on their resumes and prevent them from regaining their confidence.
But to get a fundraise across the finish line, confidence is everything. If the founder wasn’t able to be confident, his raise wasn’t going to work no matter the numbers. He needed to intentionally process his trauma.
One way to deactivate a traumatic response is to look analytically at the present situation with your more evolved brain, clarifying how things are different this time, to help the fear center of your brain calm down. In this case that meant looking closely at the fundraising process, and learning what we could learn from the previous failed raise. We dove in.
How unpacking a process transformed a failure into a badge of honor
The fundraising process is like an incredibly complex enterprise sale. And like any sale, customers make decisions emotionally and then justify them with logic. So in fundraising, the first thing a founder must do is hook an investor emotionally -- only after the investor already wants to invest will they spend the time to go through diligence and make sure their excitement is justified.
So as we looked at the previous fundraise through a process lens, we noticed an important fact: all the investors passed post-diligence. This indicated that the founder had actually done a great job getting them excited — because if he hadn’t, they never would have completed the diligence process. His brain had lumped the entire process into “failed fundraise,” but upon closer examination, what really happened was that he had gotten top-tier investors excited about investing in what was, at the time, a flawed business. According to the data, turns out he was an excellent pitchman. Investors hadn’t passed because his story wasn’t good or he didn’t get them excited. They’d passed because they found flaws with his business in diligence -- the same flaws he’d fixed over the past year.
What did this mean? It meant that if he was the guy who could convince smart people to invest time into a fundamentally broken business, he was certainly the guy who could convince investors to invest time in the rocketship he was running now. And if they invested time in this version of his business, he was confident they’d invest capital.
This simple reframe, the result of recognizing a trauma for what it was and dealing with it as such, transformed a confidence-sapping failure into a proof point of his fundraising mettle against significant odds.
And this time, the odds were in his favor.
Nothing had changed. But by looking more closely everything had. He left our conversation jacked up (a term I don’t use lightly) and ready to pitch. I felt like Wendy Rhoades in Billions.
(Note: After running a brief process, the founder is as of this writing choosing between two term sheets for his Series B. Guy can pitch, and now his business can back him up.)
Want to dive deeper?
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Executive Coaching for Entrepreneurs
There’s a reason every elite athlete in the world works with a coach. You need more than one perspective to see your best work.
I’m an executive coach and the founder of Inside-Out Leadership, a boutique leadership development agency that supports entrepreneurs to step fully into their lives, and transform their companies into their masterpieces.
Leveraging 15-years as a founder/CEO, along with deep training in mindfulness, psychology, Neurolinguistic Programming, psychedelic integration and more, I have helped leaders from some of the fastest growing companies and VC funds in the world design a more conscious life and make key changes to improve their performance and satisfaction.
I coach leaders how I want to be coached:
Focused on the person, not the role.
Focused on results, without the fluff.
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