The Nine Facts Of Fundraising You Need To Know
“Hey Brett, I’m going to be on vacation for the next couple of weeks. I’ll pick up the diligence when I get back,” Tucker said to me.
Tucker was a potential new investor in our company. I could tell he was serious about investing in our company based on the work he was doing.
But it was July, and Tucker and his family were going on vacation for a couple of weeks. So the investment would have to wait.
I replied, “No problem. I look forward to talking to you when you return.”
We had started raising this round in January. And we’d already had enough twists and turns for a good Hollywood movie.
I was bummed, but there was nothing I could do to move Tucker along faster. It was summer after all.
Fundraising fact of life number 1: Things do slow down, sometimes, during the summer.
So what did I do?
I kept working on the other prospective investors we had in the queue.
We had just presented to Jim’s partnership a week ago. Jim’s firm was proceeding with the final pieces of diligence they needed from us.
And Jim wasn’t going on vacation. So I kept working with Jim.
I wanted a term sheet from Jim and I wanted a term sheet from Tucker too. (We ended up getting term sheets from both Jim and Tucker.)
Plus, there were other potential investors we could meet with too. So we kept moving as fast as possible despite it being summer.
Fundraising fact of life number 2: It’s likely to take you at least six months or more to raise your funding.
Fund raising takes time unless you get really, really lucky. You need to plan for at least six months to raise your money.
In our case, we started raising this particular round in January. We received our fist term sheet in early May, but we needed more money to close the round.
So here we were in July still looking for money. That brings us to…
Fundraising fact of life number 3: In fact, you should plan on it taking one year to raise your money.
Then, you’ll have a buffer.
I’m glad we started in January because all sorts of unforeseen things can happen when you’re raising money:
- The economy could go into recession and the funding environment changes for the worse, or…
- Your company’s growth can unexpectedly slow, or…
- One of your investors changes their mind about accepting an outside investors term sheet, or…
- You could lose your 30% customer, or…
- Your VP of Sales quits.
You get the idea. All sorts of bad, unexpected things can happen when you run a startup and you are in fundraising mode.
This brings us to…
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Fundraising fact of life number 4: You are the only one who will have a sense of urgency about closing your funding.
So you have to push everyone else to the finish line.
It’s kind of crazy because there are millions of dollars at stake, but you will see that no one but you has any sense of urgency about closing your funding. You would think your investors do, but they don’t.
You’re just another deal, just a set of numbers to your investors. I know it sounds cold, but it’s true.
Your life will change dramatically if your company ends. Your investors will simply write off your deal and move on.
This brings us to…
Fundraising fact of life number 5: It ain’t over till it’s over.
Baseball hall of famer Yogi Berra said this about the team he was managing (the New York Mets) chances of winning the pennant in 1973 when they were way behind. The Mets eventually won the pennant.
Fundraising is a grind like a 162 game baseball season. You are going to lose a lot, but you have to keep getting up and fighting every day until you win your pennant (funding).
This brings us to…
Fundraising fact of life number 6: It ain’t over till it’s over. Reprise.
So you kept grinding and you got a term sheet. You think your work is done because you’ve gotten your term sheet.
It ain’t over till it’s over. In other words, you can still have defeat snatched from victory at the last moment.
Term sheets are non-binding documents. So your new investors can walk away at any time without any recourse.
Remember fundraising fact of life number 4, you are the only one who will have a sense of urgency about closing your funding.
So you have to push everyone to the finish line: Your lawyers, the investor(s) lawyer(s), your investor(s), the new investor(s), and your team.
Have an action plan of everything that needs to get done. Put as short a closing schedule together as you can.
Then micromanage the process every single day until the money is wired, safe and sound, into your bank account.
This brings us to…
Fundraising fact of life number 7: There’s always another round.
It’s like the line from Godfather III, when Michael says, “Just when I thought I was out, they pull me back in.”
https://www.youtube.com/watch?v=UneS2Uwc6xw
Sadly, there’s always another round of money to raise. You have to raise money even when you’re profitable.
Maybe you want a line of credit from the bank? Or…
Maybe you’re not quite profitable, so you need to raise one final round of equity? Or…
Maybe you want to IPO.
This brings us to…
Fundraising fact of life number 8: The reality is you are always pitching your company to someone.
One of the realities of life as a CEO is you are always selling something to someone.
That key executive you want to hire? You’re going to have to pitch your company to the executive.
That new large customer you want to add? You’re going to have to pitch them too.
Your existing investors want an update? You’re pitching your company again.
Pitching your company never stops.
This brings us to…
Fundraising fact of life number 9: The best time to raise money is when you don’t need it.
Investors can smell desperation a mile away. The closer you are to running out of money, the more desperate you are likely to appear.
And desperation leads to bad deals or, worse yet, no deal at all.
So, do yourself a favor. Don’t wait to raise your next round just because it’s summer. Get started now before it’s too late.
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