Raw musings on fundraising in 2025
TL;DR
My good friend + the modern sage of cap raising Warwick Donaldson invited me on his newsletter to discuss/share musings on startup fundraising for 2025. Read and subscribe here. (opp. cost far too great not to)
Yes I am sharing substack content on Medium. I think occasional cross platform sharing is healthy for competition. We all just witnessed the dangers of protectionism in tech (i.e Deepseek).
If you are a loyal medium user, read below for the raw version.
Current fundraising regime
Regime dictates the game (see first image). When money is cheap, fast hands win, bad bets are drowned out by sheer volume and everyone’s a genius. When money is more expensive (higher-interest-rate environment), gravity returns and the game slows down. We saw this in 2024, and the rules will remain in 2025.
It has become tougher to buy from LPs and easier to sell to founders. Investors who can “pick” will win (exception being Tier-1 or Tier 2 funds who can afford to rely on distribution). LPs, especially those backing VCs, have been promised returns for the last 7–8 years. Still pending, writ large.
Net result — smaller/mid-market VC funds that:
a) are not truly differentiated (information advantage, people/track record, access) and/OR b) have minimal DPI or a clear line of sight to material DPI
— will wind up/have wound up.
The unique investor count in the U.S. at the start of 2025 is less than HALF of what it was in 2021. This doesn’t account for the zombies.
Implications + tips for founders
1. Leverage has swung back (only) for the great founders.
While 2025 will maintain the prudence of 2024, those with conviction will capitalise on the best assets, despite a highly uncertain economic backdrop. Investors are against the clock to identify high-return opportunities that can stand up against other asset classes.
Meaning when they find it, it’s almost guaranteed to be a war.
In other words…
Average companies don’t get funded.
Above-average companies get funding on subpar terms.
Good companies get funding on average terms.
Great companies get funding on good terms.
2. Can’t afford to waste time w the wrong investors.
You spend hours selecting the best avocado during your weekly grocery visit, why don’t you do the same with investors. Know your audience. You can sort startup capital into five buckets: Generalist VC funds, Specialist VC funds, Family Offices/HNW, non-dilutive, and debt.
- Generalist Funds: Typically, they have a higher risk tolerance, are tech-agnostic, and offer less specific support.
- Specialist Funds: Lower risk tolerance, more flexible terms, and deeper support.
- HNW/Family Offices: Patient, mission-aligned.
- Debt: Follow Warwick — I trust no one else more on this topic.
- Larger vs. Smaller Funds: Larger funds have more capital to deploy, which makes them more aggressive in meeting their allocation targets. They often push founders to take on more capital and can be less collaborative (dilutive). Typically, they have a stronger brand and more follow-on support. Smaller funds are less aggressive, more collaborative, and have a weaker brand, with less follow-on support. VC is a game of signaling, so think deeply about what kind of investors you need and what that means for future financing.
- Why You Should Care: The difference between closing a round in 3 months versus 12 months? It’s all about the time spent with the wrong investors. Either way, fundraising takes longer than you think.
3. Storytelling alone doesn’t work in this regime.
Every VC has written a monologue on LinkedIn about “storytelling.” “Don’t tell me, show me.” Or some other generic nonsense.
This assumes that the problem is painful (A), your solution is uniquely differentiated (B), and all that is missing is a nice narrative to give it the veneer of legitimacy. Don’t fall into this trap. Focus on having good answers to both A and B. Otherwise, don’t bother with storytelling.
Zebra A is sick of hearing Zebra B’s claim of being differentiated: “I’m white with black stripes, not black with white!”
4. Cut the bs — frame your problem as Jerry would.
I borrowed this from Sam Lessin, one of the few VCs you shoud be paying attention to on X (had the pleasure of catching up w recently). He says, “What is your Seinfeld Problem?” When Jerry opens and closes his routine, why do we laugh?
- A) It evokes the feeling of “hah, I’ve definitely had that problem.”
- B) Problems are quick and easy to transmit.
Technical founders hate this. They think if they explain the tech in excruciating detail, smart people will obviously get it. Instead you want the “dumbest” person in the room to nod and say, “Oh, that makes sense.”
You: Traditional AI models exhibit hallucinations due to limited attention windows, which truncate relevant context, weakening contextual grounding and knowledge retrieval, ultimately leading to fabricated details and reduced factual reliability.
Jerry: “Why does my chatbot confidently tell me that Abraham Lincoln invented WiFi?”
If people can’t feel the problem, they won’t care about the solution — relatability gets you in the door, technicality only matters once they’ve stepped inside.
5. Cut the bs pt.2. – pitch investors on all the things that could go wrong with your business.
When someone pitches me a startup and it feels too good to be true, my guard goes up instantly. I’m immediately working against you, trying to poke holes in your pitch.
On the other hand, if you begin a pitch with all the reasons why this might not work, you’re inviting the investor to work with you, not against you. Follow with a plan of how you actually intend to mitigate these risks.
6. “Why now” is a now an even more important question.
What’s been the gating factor to your invention or solution? Why hasn’t this been done before?
I routinely ask this question. Founders love to present industry or structural justifications, but they often miss the more crucial question: Why them? Why can’t anyone else do this?
7. Parting thoughts.
- Don’t sell too much equity too early. Don’t accept harsh terms, board rights, or pricing too early — especially at the pre-seed stage.
- When evaluating a potential investment partner, over-index on the “long-term relationship potential.” Pick partners who won’t be difficult to work with, rather than chasing the highest valuation.
- A mailing list is a great idea, but aim for consistency. Find a cadence you can realistically maintain, otherwise you risk negative signaling with investors.
