We are headed into the holiday season. For founders who are fundraising, this is typically a particularly stressful time. It is certainly true that some investors slow down their activities during the holidays. That said, there are patterns and specifics for each type of investor. Also, end of year can actually be a great time for closing the rounds.
Here are some tips to maximize your financings during the holidays.
1. Keep in mind pacing for professional Angels and VCs
Professional investors typically deploy specific amounts of capital and invest in a fixed number of companies per year. Think of it as an investment budget. In addition to this, investors try to pace their investments through the year.
For example, a venture firm may plan to make 1 investment per quarter, or an angel investor may plan to make 2 investments per quarter or one investment every month.
The fact that investors maintain a pace plan through the year can be either good or bad for you during the holiday season. Because holidays come at the end of the year, an investor may have no investment budget left, or vice versa—he or she may have plenty left.
If an investor is behind on their investments, they may actually be more likely to invest to keep the pacing, even if they are on the fence about you. This applies to some, but not all, firms and angels.
On the flip side, if an investor has already made all of his or her investments for the year, they are highly unlikely to invest in you during the last few weeks of the year.
If you are talking to investors now, make sure you get clarity on how many more investments the investor can make this year.
2. A lot of rounds close around end of the year
If you already have a term sheet and you’re in due diligence, drafting definitive documents, the end of the year is a great forcing function to close the round.
For better or worse, most people, including investors, operate on annual budgets and sprints, and everyone’s incentives are aligned around closing deals around the end of the year.
It is best to set the closing date 3–5 days ahead of major holidays like Thanksgiving, Christmas or New Year’s. The reason is that closing tends to slip by a day or two because of last-minute things or missing signatures, and having a day or two as a buffer usually helps.
It is also helpful to use holidays as a forcing function—investors and lawyers want to take time off too, so everyone is highly incentivized to wrap up before the actual holiday starts.
3. Holidays are tricky times to get VCs to commit, but mostly business as usual for angels
Things tend to really slow down around the second half of December. Specifically, if you have a term sheet the deal will still close, but you aren’t likely to get a new term sheet.
The reason is that in a venture firm, decisions are made during partner meetings. It is highly likely that one or more partners will not be available during the holidays. Since most firms require all partners to be present to make a decision, no decision can be made.
This is not the case for all firms, but is a general pattern.
The situation is different for individual angels since they can make decisions by themselves. While they, of course, take time off and go on vacations, angels still are able to commit and make decisions during holidays.
4. Pipeline refresh, building relationships & re-charge
Holiday time is great for general research and refreshing the top of your investor funnel. It is also good for casually grabbing coffee with investors who are around, building relationships, and sending thoughtful investor updates, summarizing the year.
And finally, holidays are good for something we as founders aren’t really good at—taking a little break 😉 Enjoy a few days, re-charge, come back fresh and hit your financings out of the park in the new year.