Ask any veteran entrepreneur and they'll tell you that raising money for your startup is exactly like running on a treadmill, only the treadmill is set to automatically increase in speed with the close of every new round of funding. And there's no stop button, just that ripcord you can pull one time to shut the whole thing down.

Oh, and you don't get to pull that ripcord, your investors are the only ones with access to it.

So a word to the wise founder: You should never think of fundraising in terms of the single lump sum of money that you're raising right now. You definitely need to think of funding as one raise at a time. When you close this round, you go directly to planning the next round. 

Of course, it's bad form to start negotiations on the next term sheet the minute the new cash is wired to your bank account. Your investors will want to see that money put to work and they'll also want to measure the results. In fact, they'll be watching very closely, and hammering you about it at least once a month in board meetings.

All this means you need a plan for the first raise that builds the story for the next raise, which lays the groundwork for the raise after that, and onwards until you can get off that treadmill safely.

Here's how to create that plan and how to look for the signs along the way that should trigger future raises.

Catalyst and Pivot

A catalyst is an event, a happening if you will, that can be exploited to create a major opportunity for a business. A pivot is a wholesale change in a company's business model, one that puts the company into a position to capitalize on that catalyst.

The simple answer to the question "When do you ask investors for more money?" is based on discovering catalysts -- which the startup has no control over -- and establishing a pivot -- the strategy for which remains undefined until the catalyst is discovered.

So yeah, it all sounds like magic and mirrors, and it kind of is. It's terribly difficult to plan for moments you can't control and take actions you can't yet define. 

One of my previous startups, Automated Insights, began life as a sports data company, and the founder was introduced to me by an investor friend as they were deciding whether or not to lead a formal $1 million seed round. 

After a couple of working sessions, we hit upon the idea of creating narrative content from our sports data using algorithms and machines. The catalyst was a wave of new sports data being produced quickly, which spawned new analytics, overwhelming the capacity of the average analyst to ingest and understand it all. We pivoted the company to be a go-between, using machines to turn massive amounts of data into an understandable framework of narrative content. 

Once we closed that seed round, we began to explore the future of both the catalyst and the pivot. If sports analysts were being overwhelmed -- and this included all types of customers, from the teams themselves to the media to fans -- wasn't there equal opportunity in areas like finance? Marketing? Agriculture? And if we could generate narrative content that told the story as it was happening, couldn't we and shouldn't we generate content that predicted the next story?

One Pivot at a Time

It's tempting to make the leap from where your company is today to where it should be in order to exit the treadmill, but experience has taught me that's a recipe for disaster. In other words, it's a good idea to plan a long road trip from New York to Los Angeles, but it's a terrible idea to try to drive it all in one run. 

In a business sense, imagine if the roads and highways between New York and Los Angeles were constantly undergoing change. On top of that, your vehicle is changing too, and so are your tripmates. Oh, also your budget. You might only have enough gas to get you a few hundred miles. It's not a great strategy to run out of gas before figuring out where the next gas station is and how you're going to pay for more gas.

We raised our Series A on the thesis of expanding out of sports and becoming industry agnostic, creating content for any analyst in any industry. We put a pin in the predictive pivot, but eventually raised our Series B on that thesis, after proving the thesis from our Series A and landing customers across dozens of different industries.

Fundraising Isn't All Hard Numbers

What a lot of early founders miss is that it requires a great deal of imagination and faith to map out a plan from point A to point Z that is "just crazy enough to work." 

That plan has to be fueled by imagination and driven by a deep knowledge of the parameters of the problem you're trying to solve and the requirements of the solution that solves it.

It also requires faith in the decisions you're making today, as well as the decisions that will need to be made in the unforeseeable future. Again, those roads and highways are going to change dramatically as you make your way. What looked like a solid path six months ago might evaporate into a dead end six months later.

When your catalysts look less like a fairy tale and more like a market, and when your faith gives you confidence in the pivots you need to make to address that market, that's when you go back and start negotiating the next term sheet. 

Don't go too soon, or you'll be coming in with no data to back your new thesis. Don't wait too long, or others will pass you by. Start your catalyst watch before your first raise, and stay diligent until you close your next raise.

Then get ready to do it all over again.