The typical way that startups raise capital is to wait until they have 6 months of runway and then start a roadshow. They put a slide deck, model and pipeline together and hit the road.
Sometimes, this approach is unavoidable. Especially early on when you have less time and runway to be strategic. The problem with this approach, however, is that you are more than likely to get lots of “no”s.
The reason is that you’re asking relative strangers to enter into a multi-year, illiquid, risky relationship with you. You have to raise now. You leave no time for potential investors to track your progress. So, they will probably just pass.
The better way is to always be in a quasi-fundraising mode. What this means is:
- You are regularly getting intros to potential investors, long before an actual fundraising roadshow
- You tell them your vision, progress and near term goals. The goals in particular give them something to track you against. If you hit your goals, you establish credibility
- You put them on a monthly or quarterly update drip – sharing progress against your vision and goals
When the time is right, you either begin a process with a warm, qualified pipeline of investors that have been tracking you for some time. Or, even better, you get pulled into a deal by investors who have seen enough and know that they want to do be part of your company.
So, what’s the downside of this approach? For one, you need to dedicate time to this. To me, CEOs should just systematically dedicate 10% of their time to investor relations. Also, you need to be comfortable with sharing high level performance numbers and future goals with a bunch of people who may not ever invest.
It’s a similar approach when it comes to selling your company. If you just reach out to a bunch of strangers just because, on paper, they would be a logical buyer, you will get a lot of “no”s. Far better to develop relationships, share info, and get to know each other long before you think about selling your company.
Back when I was a VC, I would encourage our CEOs to touch base with their logical buyers quarterly. We do a lot of that on behalf of our companies now at SurePath.
So, the point of all this is: The chances of doing a deal quickly, with relative strangers are low. This is true for fundraising, exits and probably any significant, strategic deal. Pave the way to getting great deals done by continuously building relationships with your most strategic prospects.