If you run a hot start-up, you’ll probably have VC’s ask if you are interested in getting a pre-emptive term sheet – you don’t have to do a full fundraise but can get similar deal terms as if you had done one. It sounds like a win-win for everybody. You can get back to building your business much faster and the VC wins the deal without having to compete with anyone else.

However, the reality of pre-emptive funding is often a different story. It’s never quite as easy as it seems and founders can find themselves dragged into a financing event they weren’t ready for.

Here’s a common scenario. The VC that is planning to put down the pre-emptive term sheet starts digging deeper into the company during due diligence. And, they’re not always going to like what they see. Perhaps your financials are not in the state they should be, or your growth has had a recent slowdown. Maybe you’re going through a business model transition and it’s not yet finished.

The problem now is that you’re left with limited options. You can either accept a sub-optimal valuation from the VC or you have to walk away, burning a relationship for future financing rounds.

This doesn’t mean you need to avoid pre-emptive financing altogether – it can still be a great solution for getting the funds you need while minimizing the time spent on fundraising. The best strategy is to organize for it and approach it in the same way you would approach a real financing round – only engage when you know that you are ready.