Closing your first funding round is a significant achievement, but it’s almost always just the beginning. In venture-backed technology businesses, the need for the next raise is fairly inevitable, and it’s rarely far away. Most startups will need to seek a second round of funding within 18 to 24 months and the groundwork for that process begins much earlier than most founders expect.
This guide explores how to build value between rounds, what to expect as investor focus shifts from potential to performance, and how to position your business for a successful second or even third fundraise. It offers practical tips for knowing when to raise again – and how to make sure you’re truly ready when the time comes.
Why early preparation matters for startup fundraising
When does planning for the next round begin? Immediately. The moment your last deal is announced, you’ll be on the radar of future potential partners. They may even get in touch. But embrace that. Treat that attention as the start of a new courtship: take their calls, keep notes on what they say. It could become very relevant in 12–18 months.
Equally, time will fly in the business now. You’ll be busy implementing what you planned – but keep one eye on the future. In many ways, at this stage in a company’s evolution, you’re always fundraising. You will constantly be building credibility, hitting milestones, and communicating progress. The founders who make fundraising look easy (by securing what they need, when they need it) are usually the ones who lay the groundwork months and years in advance.
So, preparation is key – but so is timing. As a rule of thumb, start preparing in earnest while you still have at least 12 months of runway. That gives you time to turn traction into hard numbers and evidence of progress, pull together good data, and run a disciplined process without panic. And remember that calendars get congested for everyone – people take holidays and deals involve many people. July and August along with December are slow. Work backwards from when you need the money and decide when to start.
How to build value between funding rounds
The best way to ensure a smooth second round of investment is to deliver the plan that you set out when you secured the first one. Investors call it ‘value creation’; founders call it ‘doing the work.’ In a nutshell, achieve what you said you would and the business will be worth more. That puts you in a better position to negotiate. In practice, this means several things:
Develop the product or offering. Aim to show measurable progress in your performance, especially in relation to competitors. Investors want to see that you are widening the gap, moving forward and innovating.
Deliver on commercial targets. Show that revenues are consistent and reliable.
Demonstrate repeatability in how you win, onboard, retain, and grow customers.
Professionalise operations. Spend time making your processes better and more efficient. Make sure you have a handle on management accounts and use them. This isn’t bureaucracy; it’s how you make better decisions faster.
Enhance your expertise. If key hires and additional expertise were in your plan, deliver on these and monitor their influence on the business. Investors care about the depth and diversity of leadership.
Hit targets and goals. These will be unique to each business but if you consistently hit 70–80% of your stated milestones, and explain any misses with clarity, investors will remain confident.
Investor expectations in later funding rounds
By the time you're raising a second or third round, investors are no longer just buying into your vision - they’re looking for evidence. Early backers buy potential – they back an idea; later backers buy performance – they want to see you delivering. By your second or third round, the story still matters, but not as much. Now, your pitch must be underpinned by hard numbers that survive scrutiny. Later investors will have a lower tolerance for surprises. They expect you to have made and learned from mistakes. They’ll expect consistent delivery against a clear plan.
Common fundraising mistakes to avoid
Despite having navigated a first fundraising successfully, things have changed and there are often common mistakes founders make. Here are some of the main ones to avoid:
Waiting too long. Start early. Very early. If you start when the bank balance is flashing red, you’re already on the back foot. Begin when you still have time to say ‘no’ to a deal or investors that are not right for you.
Chasing a higher price. It’ll be natural to negotiate based on the highest end of what you think the business is worth. But this can cause problems later on, as expectations also increase. A fundraise based on an inflated valuation raises targets to the point that you may struggle to meet them, making the next raise even harder again.
Neglecting current investors. Remember, your existing backers are also your partners and they will have lots of experience of fund raising. You’re in this together and you’ll likely have similar goals. They can be your strongest advocates, soyou need to maintain trust and transparency. Keep them informed, not just when you need something.
Changing the story. Business can and should adapt, but strategy drift can be costly. If priorities change, explain why, what you learned, and how the new plan will be better and increase value.
Confusing activity with progress. More features, more hires, more experiments – incredible innovation. But none of it matters unless it moves one or more of three needles: revenue quality, defensibility, and efficiency.
Balancing new and existing investors in your next fundraise
It’s common that a new investor will complement and work alongside your existing ones in some capacity. That can be good. The art is balance: fresh capital and fresh networks can be extremely helpful, but without losing continuity and trust.
Founders should consider this strategy as an option from an early stage. Speak to your investors. Clarify whether they intend to follow on, and what they’d like to see from new partners. Ask for clear introductions on what they want and why.
But be careful about how everyone fits in. Larger funds can bring brand, firepower and later follow-on capacity, but they may also want board control, faster scaling and a different level of reporting. Choose partners who understand your stage and sector and whose style complements your culture – and who will complement, not compete with, existing investors.
Finally, communicate constantly and keep everyone aligned. Once the process starts, communicate milestones and feedback clearly and often. Surprises can sour relationships; transparency tends to sustain them.
How to know if your startup is ready for the next funding round
Investors look for a combination of internal and external signals. Some of the key internal ones may simply be delivering on what you said you would after the first round. Some of the external signals might come from customers: perhaps you’re struggling to meet demand, or they’re seeking reassurance about your partnerships or future direction.
Some other early indicators that you’re ready might be: you’ve hit all trigger milestones you set at the last round; strategic initiatives (new markets, new products) require resources you can’t responsibly fund from cash flow; or things are heating up in your sector.
You want to lead, not follow. Ultimately, you are best placed to understand what you need and when you need it. Consider conducting a self-test to see if you are truly ready. Try asking yourself these four simple questions:
Why now? What will this money unlock that you can’t do by simply tightening execution? Will it allow market or product expansion? Perhaps it will mean a regulatory milestone reached. A bad answer would be: ‘Because we’re low on cash’.
Will new capital de-risk anything? Be explicit about what’s now proven through what you have achieved so far, versus what remains a thesis for this next phase.
Can you put more money to good use? More money raises expectations. Be confident that your team has the ideas, capacity and systems to put it to work productively.
Would you invest in this plan? This is always a good question to ask. If the shoe was on the other foot, what questions or concerns would you have?
If you struggle with those answers, tighten the business first. Keep speaking to investors but maybe consider the timing, the aims and goal you’re setting if successful in another round.
How to approach valuation
Valuation should be a consequence of making progress, hitting targets, and keeping promises. It should not be an objective in its own right. The market and investors will weigh three threads: growth, efficiency and durability.
Growth: not just top-line acceleration, but quality. How sticky are customers, how are you growing each account, how predictable is your pipeline.
Efficiency: customer acquisition cost, sales productivity, gross margin trajectory – get used to some of those buzzwords. Show that every extra pound raised creates meaningful enterprise value, not just a bigger cost base.
Durability: investors will want to understand how defensible your product and data is. They will look at your competitive position in the market and any hurdles such as regulation.
That said, valuation will always be a function of wider macroeconomic factors and pure investor sentiment. Don’t assume an automatic step-up. A fair price that you can grow into might be a lot better than a high number that becomes an anchor around your neck.
In summary
Your first round gets you started; the next one proves you can deliver. Treat follow-on fundraising as an ongoing process, not a last-minute scramble. Build value between rounds, raise money before you have to, choose partners as carefully as they choose you, and keep your house in order so diligence is fast and uneventful.
Above all, remember the point of funding: to increase the value and resilience of the business, not just its size. When the opportunity comes, because you created it, or because the market turned in your favour, you’ll need to be ready. Preparation means you can seize opportunities – and success can follow.
