Mike Maples from Floodgate, one of our investors in Dasient, once gave us the advice that "you should always raise at a local maximum." What he was referring to was that as a startup grows, it always has its ups and downs. To get the most interest from investors (and therefore the best valuation and terms), you should time your fundraising so that it happens right around one of the "ups"-- or at a "local maximum."
When we asked him what qualified as a local maximum, Mike mentioned several possible inflection points for a startup: coming out of stealth, entering a new market, winning a big customer/partner deal, releasing a new major product. Basically anything that is news worthy, which creates a lot of momentum for the company, and that also paints a picture that there is huge upside for the business. A recent example was when Instagram raised its $50m round right after it released its Android app (and right before it was acquired by Facebook). Or when Lookout Security raised a $40m round last summer, soon after announcing a big partnership with Verizon Wireless.
As an entrepreneur, you always want to raise funding at a local maximum. This requires you to be strategic about your fundraising process, since you need to cultivate investors for some time before you formally begin to raise money. One of the biggest complaints from VCs is that they don't want to be approached for a new round at the tail end of a your fundraising process, where they would have to get up to speed on your business and market quickly, and hustle through their due diligence process. Worse yet, they fear being used merely as a bargaining chip against another VC who is ahead of them in the process. So many VCs will just pass on what might possibly be a good opportunity if they don't have enough time to do the work they need to do.
To approach your fundraising strategically, you need to anticipate what some of your upcoming local maxima will be over the next 6-12 months. And you need to keep building relationships with potential investors at a slow drip, even during periods when you are not actively seeking to raise money. Get to know potential investors, help them to get to know your market and your company, so that they are familiar with you when it's time to raise. If you keep fundraising going at this slow drip even between rounds, when a local maxima is about to arrive, you can "activate" what were previously informal conversations into a formal fundraising process. And hopefully then you will raise a round on your terms, with the wind at your back, rather than when you are up against a wall.