Fundraising in a Difficult Capital Raising Environment

By Sal Braico, Co-founder and CEO of Pivotal Health

Note: *This is an edited transcript from the MedTech Summit talk Sal presented on July 8, 2025.

It's definitely been a difficult capital raising environment the last couple of years. I think it's something that probably most people reading this have been dealing with. I'll go into a little bit of my background first and then get into the main content here.

I've been in healthcare now for over 20 years, starting, raising capital, running, growing different healthcare companies. So I've been through, now this is I guess my third economic downturn. I did my first company in 2002. I did my second company in 2008. And now I'm doing Pivotal Health. I did a couple between then. So I've seen this before, but what we're going through now is definitely different.

I'm the co-founder and CEO of Pivotal Health. We've got a tech enabled platform for clinician house calls. We're doing some pretty cool things at Pivotal. Check us out at pivotalhealth.care.

What's Going On in Venture Capital

Most people have seen this before. This is the capital raising cycle. You have limited partners like pension funds, family offices, endowments, things like that. They invest in venture capital funds. Those venture capital funds then invest in companies. Those companies grow. The VCs do multiple rounds. Those companies are trying to exit, M&A or IPO. And then the distributions get returned to the limited partners who can then invest again. So this is this cycle. And this has been going on for, I don't know, 50 years almost. I think venture capital traces its roots back to the 1960s, 1970s. It got more professionalized in the eighties, in the nineties.

And so the VC fund math is really based on this power law. And there's an excellent book about power law. I strongly recommend anyone who's raising capital should definitely read that book. If you just search venture capital power law book, you'll find it.

But VC funds, their returns are really driven off of their top couple of deals. A fund may have one or two of these grand slam deals that really return the fund 2, 3, 4, 5x. So every deal that they look at, they want to have that potential that it can be a multi-billion dollar exit. And so really, that's the frame of mind that most VCs have. They're looking at your deal as if, okay, can this be a home run? Can this be a huge, huge exit for us?

What Has Happened the Last Couple of Years?

Well, basically the second half of 2020 until about the midway point of 2022, there was a tremendous amount of capital that went into venture capital. Really just fueled this whole thing. And this chart here shows the number of unicorns.

A unicorn is a private company that is valued with a $1 billion valuation. So in that timeframe, that mid 2020 to the mid 2022, there were a ton of unicorns. And that's a direct indication that there was a ton of capital in the ecosystem at that time. And it was caused by—and this is very macro, this is very high level—it was caused by the zero interest rate policies that were in place and that were even amped up during COVID. It was also supercharged by the additional money printing that the Fed was doing.

The public markets jumped. We all recall the GameStop situation. All these people had capital. They were putting it into deals and all this kind of stuff. There were a ton of IPOs. Our friend Shamath was doing SPACs, and there was a great deal of M&A. Also, bigger players came into venture capital. These kind of hybrid hedge fund venture funds came into venture capital with deeper pockets. Tiger, I think it's called Tiger Global Management. Coatue. And a few others. So they also were putting in a tremendous amount of capital.

Then, things changed. So from the middle of 2022, as you can see here, by this chart of exit values, things changed dramatically. So people saying, "Oh why did they change? Why didn't the money train keep on rolling?" I kind of wish that it did keep on rolling. It would make my current job a lot easier. But it didn't, it changed dramatically.

And what happened was there was an economic downturn. There was inflation, there was recession talk, all this kind of stuff. The Fed jacked up interest rates. Anyone who's in the venture capital kind of private company world, you want interest rates to be as low as possible.

There was a lot of market volatility. All of these things reduced the investor appetite. They reduced M&A. Private equity firms who are often a source of acquisition or late stage capital for the venture backed companies—they slowed down their activity. And then, this caused the VC funds to put more money into their existing companies, and they often did it with down rounds. So it just slowed the whole thing down really dramatically.

I think comparing this to 2002 and to 2008, this current VC downturn has been much worse. As someone who's been through all of these, this dramatic drop is, I believe, worse than it was in 2002 and in 2008. In 2002, venture capital wasn't as big as it is now. And the same thing in 2008. And so this kind of dramatic drop has really left a lot of companies hanging.

And then also you can see there's been this increase, so the percentage of rounds in seed, series A, B, C, D, that are down rounds. So they're at a valuation that's lower than what that company raised at previously. That has also gone up. Now, it's starting to come back down, which is good. But in that 2022, 2023 timeframe, you're talking about 20 to, for a series D company, 37% of the rounds done were down rounds.

And so all of this has also pushed down the distributions to the LPs. So companies fewer exits, so there's less distributions to the LPs. The LPs have slowed down their investment into VCs. And then of course the VCs are investing less. So the cycle broke down. Now things are beginning to normalize, getting back to the pre 2020 kind of era. But it's been painful. It's been a lot more difficult.

The Minimum Capital Raising Toolkit

So let's talk about how do you deal with this? These are the minimum things that you have to have, that you have to have locked down. You have to have in place if you want to go out and raise capital.

Sharp Value Proposition

So the first thing, your value proposition has to be sharp. It has to be tight. You have to be solving a significant problem. You need to have a painkiller, not a vitamin. So that value proposition to the customer must be crystal clear so that the investor, whether it's an angel or a VC, they have to be able to see it. If what you're working on is not that, drop it and move on. Find something else that's an absolute painkiller for the customer.

It's best, it's easiest if you have validation, have some type of market traction. And I know if you're working on a medical device, you may not have actual sales or anything of that sort, but you need to have a lot of customer validation. Physicians, users that say, yeah, if this product existed, we would definitely use it. And then if you do have actual sales, you need to have traction. Just one or two customers is not going to get it done. You need to have traction, you need to have that kind of sales growth.

Financial Story

Your financial story must be tight. It's all about margins. What are your gross margins? What are your net margins? Can you scale the company in a financially sound way? So you really need to understand your financials and your financial projections.

Because I've been in meetings where investors ask me very detailed questions. If I don't know it, it looks bad and the deal's not going to happen. I've seen people who are writing checks of $10,000 or just $25,000, they grill me on this. So it's not just like a VC that is looking to invest a big check. Everyone is looking at this. This has to be tight, even if you're not a financial person, become one. Know your Excel projections inside and out.

Also, it's really important to know how much are you raising and what will that allow you to do. Your financial plan must be based on what value creating milestones are you trying to hit. If you think it'll cost you $500,000 to hit those big value creating milestones, go out and try to raise a million. Because it always takes longer.

But that's what your capital raising plan has to be based off of. What value creating milestones will this capital allow you to reach?

Target the Right Investors

Don't waste your time and talk to the wrong people. Put in a lot of effort upfront to make sure you're targeting the right investors. Identify investors that are interested in your sector, your sub sector, that are interested in your stage, that are not invested in your competitors.

There are a couple of VCs that will invest in competitors, but most won't. Don't waste time, but you're gonna need to talk to like a hundred different investors. So you need to use Crunchbase or PitchBook, whatever. Do your research. Talk to other VCs, talk to other people that, "Hey, who would be interested in this?"

You also need to figure out who has capital. So a venture fund is typically done over a 10 year period. They invest their initial rounds in companies typically the first three years. Maybe four max, but it's typically like the first three years. So if someone doesn't have a new fund in those first one, two, or three years, you can talk to them for the future, but don't talk to them thinking that they could come in on your deal.

But this is really important. Put in a lot of due diligence. There's a lot of lists out there that you can find of investors, and you can sort it and figure out who's got capital and who's interested in the kind of company that you have.

Also you want to prioritize them. So as you're doing your pitches, don't give your pitches to the highest priority VCs first. Push those down a little bit so you can hone your pitch. So your first couple should be maybe with VCs that you think won't invest, or maybe you're not like a perfect fit.

That'll give you the opportunity to hear what questions that they ask, so you can get your pitch really good, really tight, so that when you are ready for your high priority investors, you're all set.

And yeah, the market mood has definitely changed. You gotta make sure that your pitch understands that. You're not raising too much capital. Your pitch has to reflect what is going on and what you're working on.

Conserve Cash and Explore Alternatives

So conserve your cash. This takes six to 12 months at least. This is a sales process and like I said, you're gonna have to talk to a hundred different investors, and I'm not exaggerating that. Before maybe you had to talk to 25, 30. Now it is literally like a hundred. So you need to have a CRM, you need to have all this kind of stuff worked out. You need to have your funnel, all this kind of thing. You just need to have this, but this takes time.

So if you're an operating company, conserve your cash, cut any expenses that you possibly can. Extend your runway as much as you possibly can.

While you're trying to raise venture capital and angel, look at the alternative sources. I know, unfortunately, federal grants are really difficult to come by now. But there are other things.

If you're generating revenue, can you get a loan? Are there competitions that you could go after? In addition to the VCs and the Angels, talk to companies as well. A lot of companies will do partnerships. So you just have to be creative. You need to talk to as many people as you possibly can.

Prepare Comprehensive Documentation

Prepare comprehensive documentation. So this is the table stakes. These are things that you have to have, you need to have a good slide deck. You need to have an investment memo. Because what happens is VCs, if they're interested in your deal, they will prepare a memo. If you have something that you can give them that you've prepared yourself, and there's a lot of templates out there, you can send that to them, that might help them generate the memo for your deal faster.

So I like to have both the slide deck and the memo. And the memo is maybe three or four pages, maybe five pages max. So it's not like a 30 page business plan or something like that. The financial projections, again, those have to be tight, but that's a must. And then you should also have a data room with your incorporation documents and all the other important contracts and things. If you just Google venture capital data room, a lot of sources that'll tell you these are the things that you should have. So that when a VC or someone asks you for the data room, you can easily give them access.

I personally use Dropbox and I just share a Dropbox folder with the VC. There are some better tools out there where you can track access and things. So definitely look at those. But you wanna get that preliminary data room in place so that when someone has interest, you can move fast.

Network, Network, Network

And of course, this is something we should all be doing all the time. You need to be networking and networking and networking. This is all about warm intros. I've gotten meetings with cold emails, but it's incredibly difficult. I'd say my hit rate is probably five percent. So probably five out of a hundred cold emails that I've sent have ever actually ended up with a meeting.

But when I ask for warm introduction to a VC or someone with people in my network, it almost always works. So you have to be doing this all the time. Whether you're raising capital or not, you should make it a goal to have five to 10 conversations with different people every single week. If you don't like it, tough. That's the job. That's what you have to do. If you're an introvert or whatever, then go find something else. This is what you have to do. There's no question about it. You have to network, and you have to network all the time. You can't just wait until you're raising capital. You need to network all the time.

Accelerating the Capital Raise

So let's talk about what it really takes. Because these are the things that, like I said, these are like the minimum stuff that you have to have. But what does it really take?

It takes FOMO. You need to generate fear of missing out. This is the hardest thing. By far, this is the hardest thing because if there is no FOMO, the VC will just wait. The angel will just wait. If they don't think they're missing out on something, they'll just wait. I mean, there's no reason for them to write the check. So this is by far the hardest thing.

So I wanna spend a little bit of time talking about that, and then I'll just wrap this up. But you need to signal scarcity and that this is a limited opportunity. So you need to, as you're talking with people, say, "Oh, there's only a limited allocation left."

You need to set deadlines. And it's tough. I've been in the position where you set a deadline, but you don't have the capital to back it up. And so what do you do? So it's like, work your butt off to get that first commitment, and then use that first commitment to set deadlines for additional capital.

But that's really important to get that signal of scarcity out there.

You wanna communicate a momentum. So you wanna announce those early commitments. You wanna amp up your social media, "Hey, we're doing this and we're doing that and things are going great and we just did this and we just got this contract" and now you want to keep that momentum going. So constantly share progress. If you have a list of VCs that you're keeping updated, monthly, quarterly, send that out to them, "Hey, we're doing this and we're doing that, and things are going great."

One thing that has worked for me over the years: I send out a monthly update to investors. So anyone that invests in my companies, my current company, they get a monthly update from me. So every single month. And it could be something short, it could be like a paragraph, it could be a couple things. But without fail, I send a monthly update. That has worked wonders.

Because those people often have invested again. Just by keeping them updated, people really appreciate that. So that's something that, if you have a company that I cannot recommend them more. Send out a monthly update.

Leverage social proof, like I said, amp up the social media. Have people that are invested in you, have your partners amp up the social media around your company. What you're trying to do is engineer buzz. Again, you're trying to create FOMO. So go on LinkedIn, go on X, go on whatever social media channels, talk to as many people as you can.

You wanna get people talking about what you're doing. That's important. You gotta create that buzz.

Be strategic with the ask. So this is something that I'm not totally sure about. Some people say, well, "you should maybe try to raise a little bit less than what you actually need so that you can say, oh, the round is oversubscribed."

I don't know. I'm not sure if that works. I've never tried that myself, but it's just something to think about.

And then finally set the right tone and timing. Again, this is all about communication. You need to keep the communication channels open when you're raising capital and even when you're not.

So that when you are, those channels are primed and pumped and ready to go. You can't just pop up every couple years, oh, now I'm raising capital. You need to keep the communication channels open. Again. That goes back to the networking. That's all part of that. There's not one thing that creates FOMO.

It's this whole combination of things.

Q&A: The Reality About Lead Investors

Q: John Knox I get the impression that sometimes these fundraising deals get stuck or delayed a bit because a lot of the VCs who've made commitments do not wanna be the lead investor. So I wonder if you could comment a little bit about, what is a lead investor and how can you manage that when all your committed money seems to be waiting for somebody to step up as the lead investor?

A: Sal Braico Here's the unfortunate truth: if you don't have a lead, you don't have anything. VCs and angels all the time say, "Well, if you get a lead, then I'll come in." That's frankly BS. They're just saying that. That's not like a legal requirement that they have to come in.

It's just something that VCs say to just test you like, oh, if you do have a lead, come back to us. So the unfortunate reality is if you don't have a lead, you really don't have anything. So that's what you're working for, trying to get that lead. If you do have a lead, rest of the round is easy.

Because VCs are sheep. They're sheep. You just need to get one, you need to convince one, and then the rest will follow, "Oh, this fund is in?" Then they're in. But they're sheep. So you're just really trying to focus on that lead. Once you have the lead, the pressure comes way down.

You can fill out the rest of the round much, much quicker.