Funding rounds are taxing. Whether you are running your first uncoordinated family and friends round or preparing for a large Series B event, by which stage you are well versed in fundraising for your business. Here is a tale of a seed round gone wrong.

I recently had the opportunity to journey alongside a startup founder, applying for a seed round, and in this case, I was helping the founder prepare for the round, not from the perspective of evaluating the deal as a funder. We worked hard. The founder getting through the first number of meeting gates to confirm mandate fit with the funder, and the rest of us, assisting the startup in getting their data room ready, financials up to date, IP and statutory discussions, legal contracting checks, the whole works, in preparation for the DD.

Three months into the process, the term sheet is presented to the founder, and the next phase of hard work commences to prepare and negotiate the (very complicated) term sheet. To safeguard the decision to be that of the founder’s ultimately, I always wanted to ensure we carefully navigated the journey between pushing and pulling, moving the process along as quickly as possible. The founder is a technical expert in his business, so he was not fully equipped (at this stage) in deal-making, and a couple of fundamentals then slipped through the cracks during the term sheet phase. But a signed term sheet is a signed term sheet. Whether it could feel like a non-binding legal document, it is the foundation of how the deal is put together.

Another six weeks after the signed term sheet, the full set of legal documents is sent for perusal, and this is where the wheels come off. Six more weeks of extensive discussions, meetings, messages, facilitations, and mediations, but more was needed to solve the very complicated, founder-unfriendly terms for this seed round. This process leaves the founder out of runway, humour, and hope. On the other side of the table, the potential funder was frustrated with the perceived disparity of heart between where the funder was at the term sheet stage versus where they found themselves at the end, unable to get the deal over the line.

What were the five key lessons I took away from this horrible ordeal, as I felt equally responsible, as an ecosystem player, with the startup and funder for the failure of the deal, that I could share with startups going through their first seed rounds:

1. The term sheet truly is the foundation upon which the legals are done, don’t be fooled by the “non-binding” bit and think you can buy time to do the critical bits of negotiation later;
2. Always be prepared for the eventuality that the deal may fall through, even if it looks so close to being agreed upon and signed. You cannot depend on the funding round as a miracle because you are out of runway. As counterintuitive as that may sound;
3. You don’t do the deal with only the deal lead. The deal lead has a whole Investment Committee with its toils and troubles. It helps to have an amazing relationship with the deal lead, however, know that the deal lead is one cog in a much larger machine;
4. If you are one of those founders still responsible for bringing sales into the business and must run the funding round, which is often the case at the seed stage level, know that the command of your time for the funding round will impact your sales pipelines. Be prepared for this. Especially if the funding does happen;
5. Lastly, customers are your best funding source, especially in these earlier stages. Don’t be fooled. If they are not buying, you are either not selling properly, or the product is not ready yet. Think before you take complicated money into your business in the early stages instead of fixing the product-market fit and making sales.