building relationships

So Your Portfolio Company Wants to Fundraise...

Let’s imagine I am the founder of a SaaS business that helps independent dance teachers build an audience and deliver online classes.

We generate $650k in ARR (annual recurring revenue) and have six months of runway. My co-founder and I met in business school. This is the first time either of us have started a company.

I tell Eric Bahn (co-founder of Hustle Fund and my fake investor) that I want to raise my series A. But Eric doesn’t believe we’re ready.

What should he tell me?

How does an investor deliver honest (and sometimes painful) feedback without ruining the relationship they’ve built with the founder?

I dug into this with Eric last week – specifically, how he determines who is ready to raise their series A… and his approach to delivering blunt feedback.

First, who is ready to raise money?

There is no universal answer to who is ready and who’s not. But there are some factors that will influence your portco’s success.


A company building spaceships will likely produce no revenue within the first year. But they still have a chance to raise money because space companies are not expected to produce revenue right away.

On the other hand, if a SaaS company has zero revenue within a year, investors will see that as a big red flag and usually pass on investing in their series A.

Hustle Fund invests in businesses from all industries, but we tend to favor SaaS businesses because they can monetize faster. We find that when a company is making $1-5 million ARR, or is exhibiting double-digit month-over-month growth for at least 3-6 months, that’s a sweet spot to strongly consider raising their series A.

Every industry has a different range of what’s good. As an investor, you can research your portfolio company’s industry to see how they rank compared to others who were recently funded.


Teams with a lot of pedigrees tend to be able to raise money earlier and faster because of their strong track record.

Think Stanford graduates, former BCG consultants, second-time founders, etc.

High-school dropouts from the midwest tend to have a lower success rate when raising money.

This doesn’t mean a founder without pedigree should avoid fundraising just because they aren’t as well-connected or look as great on paper.

But you may need to encourage your founder to prepare more for their raise if they don’t have a ton of former classmates and tech-company colleagues to reach out to.

Our team at Hustle Fund doesn't put a lot of stock in pedigree. But many VCs do, and that's a reality that founders need to be aware of.


Your portco can be in a fast-growing industry AND have a stacked team… but still struggle to raise money.

Even if they check all the boxes, the market may not agree.

Investors tend to write fewer checks in a risky environment. We are in a downturn right now and this makes raising money more difficult.

Many founders are waiting to raise their series A. If they need money, they have the option to raise extension money (at the same, or sometimes lower, valuation) to extend their runway.

How to tell your founder that they’re not ready (with class)

Eric is the master at delivering honest feedback in a caring way.

Going back to my fake SaaS dance company, here’s how Eric would respond and why:

Ask for permission

“Tam, I want to set a social contract. I’m going to be brutally honest with my feedback but I want you to know that it’s coming from a good place. Is it ok if I share candidly what’s on my mind?”

This question primes the founder to be open and less defensive to hear honest feedback.

Since Eric and I have a good relationship, I know he has my best interests at heart, and what he has to say will be helpful… even if I may not like it.

Be direct

“Tam, I don’t think you’re ready to raise your Series A and here’s why. I think you need to demonstrate at least $1m ARR, preferably $3m ARR if you can.
I believe you need to invest more time in building your product and team to handle the scale. Lastly, the market is really rough right now and I think it would be in your best interest to circle back in six months to see how the climate is then.
If you make these changes and if the market is more open, I would feel much more confident in you to raise your series A.”

As an investor, you need to be brutally honest with how you feel. Don’t dance around your message.

If there’s something your portcos need to hear, you are doing them a favor by giving them your blunt feedback.

Don’t be vague. Get specific on what the founder needs to solve. State the conditions that need to change so that you can be open to changing your mind.


While this may sound simple, delivering hard feedback is not easy to do.

One piece of advice Eric learned when having these kinds of conversations is to have a big smile on your face.

Yes, you read that right. 😀

Having a smile is disarming. It makes it feel like you’re on their side and makes the bad news easier to take in.

Until next time,

Tam “thanks for the feedback” Pham

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