One of the most frustrating aspects of raising capital is how long it can take. Even if an investor loves the idea after the 1st meeting, the process still takes months. Now that I am sitting on the other side, I have a better appreciation for why things take longer than entrepreneurs would like. So, I thought I would share some thoughts on why things can take long and how you can accelerate the process.
We are four partners at Real Ventures, and we see a lot of opportunities. A small number of those are clearly not a fit and so we pass quickly, but the rest all require some amount of work. Plus we have an active portfolio in our 1st fund that we spend time with. And of course, we “have to” attend events, conferences, meet with other investors and generally meet people all the time. So, unlike the entrepreneur that gets to focus 100% of his or her attention on their company, as an investor, our attention is fractured in many directions.
I am fairly process driven (side effect of being a CFO for so long), and for me at least, I need dedicated blocks of time to think about a given opportunity, so that I can really get into it, think through the drivers, issues and develop a thesis for how things will play out. That can be hard to do when you have so many demands on your time. I can leave a pitch totally psyched about it, but not be able to touch the opportunity again for a week.
So, what’s the solution? Here are my suggestions for getting funded faster:
Be prepared: Have your investor materials (exec summ, pitch, financial forecast) ready to go. Make sure they are great. The goal of the exec summ is to get you a meeting. Nothing more. The goal of the pitch is to get the investor to dig deeper. Nothing more. These are sales documents. Not educational documents.
Parallel, not serial: Run a roadshow process. Dedicate a team member full time to fundraising. Hit up all investors at once.
Don’t do it alone: Before you begin, assemble your team. Make sure you have advisors and mentors who have done this and who have relevant relationships. Have a deal lawyer who knows the space.
Get introductions: All funds, including ours, have web submissions or you can e-mail email@example.com. Don’t bother. We do genuinely look at cold submissions but place a high priority on trusted introductions. Get people investors know and trust (their porfolio CEOs, VCs, lawyers, etc) to introduce you. Ideally more than one intro.
Get a running start: I am a big fan of building investor relationships before you start fundraising. Mark Suster has a great post about investing in dots not lines. The gist is that as investor you want multiple touch points and opportunities to get to know the team and see the progress. The surest way to accelerate the deal process is to blow away investors with your progress each time you interact with them. So, meet investors before you are ready to raise so they know you and your story and can track your progress.
Start early enough: This is an extension of the last point. Don’t start the process when you have 3 months of runway left. Start early.
The right investor: If you have a SaaS, freemium or e-commerce business, I’m going to get it quickly. If you have something that I don’t focus on, it’s much tougher and is going to take longer. The point is, don’t just pitch any partner you get introduced to. Pitch the partner that is most focused on your sector.
At the right time: Timing is (almost) everything. This is true for individual investors and for the fund as a whole. As an individual, if I have other deals going on, I may not have the time to move a new opportunity forward. As a fund, if you approach us at the end of our investment cycle, the timing might not be right. It’s easy to figure out where a fund is in their investment cycle. Look at when they closed new capital. You have 3 – 5 years from that point for active investing. It’s harder to know what is on an individual partner’s plate.
Build trust: You do this by having multiple touch points with investors (to my earlier points about building relationships before fundraising) and by telling investors what you’re going to do, then next time you speak with them let them know you did that and more! Do that a couple of times and that will get attention.
All about traction: You need to time fundraising around milestones and progress with your development and ideally goto market. Nothing will get investors to move faster than seeing a startup kill it.