Unwinding the trauma of a failed fundraise

How a closer look helped a founder transform a black-mark into a badge of honor

Welcome Entrepreneurs. I’m so glad you’re here.

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And second, 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.

Now then.

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.

Hope you enjoy.

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.)

(HT: Julie Mosow, Cameron Zargar, Dan Hunt and Foster for editing!)

Liked this article? I’d be honored if you’d share with others who might find it valuable. 


Who is Ryan Vaughn? 

I’m an executive coach for startup founders, a role in which I get to help high-performing founders design a more conscious life and expand into extraordinary leaders. I’m a 3x Founder/CEO who’s raised $20m+ in VC and built a market-changing company, as well as two other companies that taught me things. I’m an avid writer, meditator (decade+ practice), reader, athlete, father, husband, amateur physicist, student of leadership, and adventurer. I’m also none of those things. But I am glad that you’re here.  If that’s not enough, here’s a more detailed bio.


One: How to Keep Criticism from Sinking Your Confidence: Walt Whitman and the Discipline of Creative Self-Esteem (Maria Popova)

Continuing the theme from the main story, I loved this story about a meeting between Walt Whitman and Ralph Waldo Emerson, in which Emerson lovingly ripped apart Whitman’s poems. Whitman writes of the experience:

“More precious than gold to me that dissertation — it afforded me, ever after, this strange and paradoxical lesson; each point of E.’s statement was unanswerable, no judge’s charge ever more complete or convincing, I could never hear the points better put — and then I felt down in my soul the clear and unmistakable conviction to disobey all, and pursue my own way.”

And if I may be so bold as to paraphrase Whitman for entrepreneurs: hear the feedback given you, but don’t follow it. This is your life, and your company.


Two: The Order of Time (Carlo Rovelli)

The latest book for my long-running book club, The Order of Time is physicist Carlo Rovelli’s attempt to break down what the bleeding edge of physics has learned about the nature of time for your normal everyday physics nerd. If you have a working knowledge of quantum physics or Google this book will blow your mind.

TL/DR: Time is, only, human beings’ interpretation, through the generative functions of memory and anticipation, of the Universe’s increasing entropy, which itself only exists as a blurred (and incomplete) perception of our universe. Our perception of time (increasing entropy) is itself the limitation preventing us from seeing the Universe as it actually is (timeless). But it’s also the only reason we exist.

So cool.


Three: A Free Shave (Ernest Hemingway)

Ernest Hemingway started his career reporting at the Toronto Star. Read any article about any city in America…go ahead… and then read this one about Toronto. There’s reporting, and then there’s reporting.

(For more reporting, complement this with one of my favorites: DFW’s “Roger Federer as Religious Experience”.)


Four: The Search for Purpose at Work (McKinsey)

Mihaly Csikszentmihalyi, author of Flow, writes of purpose-driven leadership: “When a leader demonstrates that his purpose is noble, that the work will enable people to connect with something larger—more permanent than their material existence—[ then] people will give the best of themselves to the enterprise.” 

This conversation on the McKinsey podcast dives deep into people’s pursuit of purpose in their lives, and specifically an organization’s/leader’s role in providing that purpose. Here’s a snippet:

“One of the really interesting pieces that we found in the research is that nearly seven out of ten employees are reflecting on their purpose because of COVID-19. Those employees who say that they live their purpose at work are six and a half times more likely to report higher resilience. They’re four times more likely to report better health, six times more likely to want to stay at the company, and one and a half times more likely to go above and beyond to make their company successful.”


Five: Employees, this is your moment. Make the most of it (Ellen McGirt, Fortune)

From Ellen McGirt’s weekly newsletter for Fortune. The Edelman Trust Barometer survey puts numbers behind the observation of a shift in power toward employees that companies are currently navigating.

Link to the newsletter below, but since apparently there’s no link to this exact part, full text below also:

For the first time ever, employees are seen to be more important to a company’s long-term success than any other stakeholder — three times more important than shareholders, in fact. This is the finding of the most recent research from communications firm Edelman, which recently released its 2021 mid-year Trust Barometer Spring Update report. The company surveyed more than 16,800 people in 14 countries between April 30 and May 11, declaring “multistakeholder capitalism just came home to roost.” The shift first became clear in Trust Barometer research from 2019. “Seventy-four percent of institutional investors said a company’s ability to win the best talent is more important in gaining investors’ trust than the ability of that company to attract new customers or increase a valuation multiple,” they found. Edelman



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