As a founder, raising investment for your business is a very exciting prospect. Of course it is, raising investment immediately enables you to execute your plans for growth and puts you on the path to reaching the next level as a business.
On the outside, the process looks simple – you reach out to various investor prospects until one (or more) of them sees the potential in your business, you agree to the terms of investment, conduct the necessary legal procedures, and then watch the money come in.
You’ve probably guessed by now what we’re about to tell you…
Very rarely is it ever so simple. Many factors can derail you from the moment you decide to raise funds to actually getting the money in the bank (… if you are successful!) and it is important to manage your expectations from the outset to avoid ending up frustrated and disappointed.
Despite appearances, the majority of founders never go on to raise capital – getting to the point where you have gained enough traction to be on an investor’s radar is the first step, congratulations if you have come this far! Getting an investor to actually put their own (or someone else’s) capital into your business is another story…
With this in mind, you must be prepared for just how excruciatingly long it can take to raise investment. Even if you do succeed in getting an investor to commit, the due diligence and legal review processes can take a very long time. The entire process will probably take longer than you have planned and budgeted for, so it is very important to:
1. Leave enough time for the process to run its course
2. Not be entirely reliant on your business receiving funding in this round
Our advice is to expect a 6 month lead time to raise investment * though some investment rounds can take up to 1 year to complete* so, start the raising process long in advance of you actually needing the money.
Not only will you probably receive more no’s than you have ever received before, but many investors won’t even respond to your emails. Those that do get back to you may tell you things about your business that you won’t like to hear – it’s important not to get defensive about the feedback you receive, receiving feedback is much better than receiving nothing at all!
It’s also worth bearing in mind that although there are many individuals that self-identify as investors, many aren’t actually deploying capital. This scarcity makes raising money from investors even harder than selling your product or service to early adopters. Investors are not only in short supply, they invest at different stages and across different sectors. They are also known to lead founders on – ready to put forward a term sheet one day and not returning your calls or emails the next…
Investors are typically not as independent of thought as they would like to believe. Most closely follow the movements of other investors and one of the biggest factors in their decision-making process is often the opinion of others in their inner circle. This can be frustrating for a founder, trapped in a vicious cycle whereby the lack of initial interest in your business causes others not to show interest.
If you don’t need to raise investment, don’t. If you can bootstrap your way to achieving your growth targets while keeping the lights on, then this is ideal Not only will you avoid the stressful and time-consuming fundraising process, but you will retain a greater ownership stake in your business.
Set realistic expectations. The reason raising money hurts morale is not simply because it’s hard, but because it always ends up being harder than expected. It’s the feeling of disappointment that drains you the most. Know beforehand the immense challenges you will face raising investment but do not give up. Having a positive mindset during this time is really important, you need to get through as many no’s as you can in order to get that one important ‘yes’.
Educate yourself. The last thing you want to do is go into this process uninformed. There is a very real chance that you will end up making all the wrong decisions, which could be catastrophic for your business. Educate yourself as much as possible about the world of raising investment. Here on Runway, we have articles, webinars, and videos covering all the different angles of investment fundraising. The pieces have been written by experts of all backgrounds: some have successfully raised multiple rounds of investment, others are experts in different areas of fundraising and some are investors themselves. In addition, if you want to learn everything there is to know about pitching to investors and setting up your CAP Table, go check out Runway Pro.
Keep growing and developing your business. Avoid falling into the trap where raising investment is taking away so much of your focus that you are no longer committed to innovation and building your business. Not only is this counterintuitive, but it can also make you less attractive to investors. Investors want to invest in dynamic companies that are constantly making progress. A company that hasn’t done anything new in months is not going to attract investors. If you keep the company moving forward while you fundraise – releasing new features, increasing market share, securing partnerships – fundraising meetings are more likely to be productive.
Don’t let rejection get to your head/heart. Getting rejected by investors can feel personal, but it’s not. You may think that if multiple experienced investors aren’t showing interest it’s because something is fundamentally wrong with either you or your company. Try not to let these intrusive thoughts affect you. Remember that rejection is by far the norm when it comes to presenting investors with an opportunity – they see hundreds if not thousands every single year.
Instead, try to understand the specific reasons why someone is not investing. Take an objective look at your business/pitch and consider what they are saying. Figure out what’s not working and change it. Don’t let rejections accumulate, go through and analyse them.
Figure out where you stand with investors. If you want to move the process along a bit faster, constantly look for signs of where you stand when talking to investors. Determine how likely they are to offer a term sheet. If they’re not prepared to do so, ask yourself why not. What doubts do they have? What is their investment timeline? Apply a sense of urgency by asking what specific questions they need answering in order to make a decision. If you get through several rounds of discussion and they keep raising questions, assume they’re unlikely to invest. Ultimately, the best way to get investors to act is to have other investors show interest. Talk to several investors and focus on the ones most likely to say yes.
Seek professional help if necessary. While all of the points above still very much stand, sometimes it can pay to get professional assistance when raising funds. Surrounding yourself with experts (such as Raising Partners) who can help you navigate the process, keep you grounded and do all the heavy lifting for you can make a world of difference. To find out why we think it’s important to get professional help when raising investment, click here.
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