You can do anything but not everything. It might feel like as a founder you *need* and sometimes even *want* to be spinning all the plates, but there are just some things that you just shouldn’t try and do yourself and fundraising is one of them.
You wouldn’t attempt to do your legal work yourself unless you were a qualified solicitor (or at least we hope you wouldn’t). You wouldn’t attempt to file your own accounts with companies house unless you were a qualified accountant. Fundraising is no different. Raising investment is both an art and a science, requiring in depth knowledge of a constantly evolving market.
Unless you’re living and breathing investment every day (spoiler alert – you shouldn’t be!) then you shouldn’t attempt a fundraise without seeking professional support. Even if that support is just a 20 minute chat to sense check your strategy and assumptions.
Before we go any further, we should disclose that Raising Partners, specialises in early-stage equity fundraising, supporting businesses to raise from seed through to series B. We promise this isn’t a sales pitch, there’s no catch to this article, or in fact to the content here on Runway. This is about sharing our advice and knowledge with the start-up ecosystem in the hope that it adds value and helps.
Now that’s out of the way, let’s look at why we think it’s so important that you speak to a professional when it comes to raising investment.
A final word on engaging someone to help you fundraise is that not all corporate finance professionals and fundraising advisors are equal. Like everyone else, they specialise in different sectors, industries, types of investor and stage of growth. Look to work with people who are used to working in the scrappy, rollercoaster ride of early-stage capital and truly get the early-stage landscape rather than assigning the task of fundraising to a business you know because they built a brand out of delivering a service that wasn’t start-up fundraising!
A real world example
Without naming names let’s look at an example of an anonymised scenario we’ve seen happen this year: Company A is a healthtech business with a monthly recurring revenue of £10,000 at time of raising. They’ve built their product and are delivering promising early metrics but they need to raise a second-seed round to get them through to Series A and beyond. They engage a well-known corporate finance company and sign up to pay a monthly retainer fee (very normal), for the company to produce a business plan and financial model and then share the opportunity amongst their network. The model inevitably comes back showing that they need to raise £2m which is far more than the £750,000 they had set out to raise originally. This strategy means they need to raise at a much higher valuation to avoid crippling dilution. The founders of Company A are skeptical at first, unsure if now is the right time to raise as much as that, but quickly come round to the idea when they think about how they would spend their £2,000,000!
The corporate finance team duly write a lengthy business plan and begin their quest to find investors. They send the deal to 25 institutional funds, with 5 showing some interest and exploring due diligence and the remainder either not coming back at all or stating that the deal is too early. All the while, Company A is burning through cash and getting more and more concerned about the lack of capital flowing in. 3 months turns into 9 and now the business is in a sticky situation, cash is running out, fees are stacking up and they still aren’t any closer to closing the deal.
Feeling deflated, Company A takes a new approach and engages a new team of fundraising advisors to get a fresh perspective. Immediately, their new team rewrite the plan in the form of a detailed pitch deck with all the key metrics they know investors are looking for right up front and brought the content to life with a slick and professional design. They revise the target back to the original round size of £750,000 at a much more palatable valuation for early-stage investors and send the deck out to angel investors, early-stage funds and family offices. In 12 weeks, the deal is closed.
What did Company A learn?
Firstly, the suggestion that Company A should raise more than the founders originally planned was the wrong strategy for the stage of the business and led to a lot of time being wasted speaking to investors who were simply never going to invest because the business was just too early for them. Just because you *could* raise more money, doesn’t mean you should.
Having advisors on board was critical to the success of the round but having the right advisors who understood their stage and the investment landscape they were operating in from day one would have saved them a lot of time and money!