Most start-ups fail, and most people, especially investors, are well aware of this risk. There are many things you can do to make sure that your company gets the proper funding in place. The trouble is, to do it right, raising capital takes more time and effort than you can imagine. This is a real problem for most early-stage companies for the simple fact that the founding team is stretched thin trying to prepare product(s) for market.
So what can you to do increase your odds of success and make it less painful?
1) Education. Your team – all stakeholders – that will be raising capital need to take the time to learn where capital is sourced and the process that it takes to be successful. Read up on recent blogs from founders that have recently raised capital. We have come across a number of them that provide valuable insights on their experience. Finally, educate yourself on the basics of corporate finance. It is not that hard to understand the difference between common stock and preferred stock, “C” corporation and LLC, valuation and share price, and so on.
2) Document a Funding Map. Your team needs to visualize where, how and the timing of the capital raise. Do not assume people have a general idea. Put it on paper and make sure everyone weighs in. I have never met a team that raised capital quicker and easier than their original plans. Prepare the team to think about strategies for the long-haul including back-up plans B, C & D.
3) Talk. Talk. Talk. Tell others what you plan on doing. Build your external support network. These are not necessarily your funding prospects – these are mostly people that have “been there, done that”. You need mentors / advisors / “friends” to be a support mechanism and critical feedback loop. This critical support network will hold you accountable to your goals.
4) Prepare. At a minimum, you need an elevator pitch, investor presentation, business plan, executive summary, financial model, dealteam, due diligence items and a subscription agreement ready. Do not start pitching for investments until all of these are accounted for. “One bite of the apple.”
5) Execution tools. Be ready with a data room, project management suite, CRM dedicated to raising money, pitch video, product demo video and relationship management tools like an email newsletter service.
6) Develop a dedicated process. Focus on casting a wide net so many people become familiar with you and your company. Develop systematic ways to be in touch with these fans and followers like email campaigns, drip out news stories / industry highlights, send thank you notes after meetings, find ways to help someone before you ask them for help. The goal needs to be that you “touch” a prospect at least ten different times before ever asking for money. Digital media is a great way to achieve this.
7) Stick to your process. This sounds the easiest, but in reality it is the toughest step and the leading fatal flaw in raising capital. You need to establish internal and external support mechanisms to achieve this. Doing this in your head does not count. You need a weekly scorecard that tracks your critical goals that you must consistently achieve to get capital in the door.
8) Guerilla Marketing. Today, you need to be clever where and how you identify and approach potential investors. If you are relying on old school word-of-mouth fundraising via friends and family, you’re dead. You need to hustle and execute innovative ways to build your brand and interest in your company.
9) Guts. Patience. Persistence. As the Chairman of a former employer would tell me: “Patrick, if it were easy, we wouldn’t need you”. That was always a humble reminder to keep your nose to the grindstone! Raising capital is never easy. It takes guts, patience and extreme persistence!
Now go get ‘em!
Patrick E. Donohue, CFA
DealPen
Musings from the Bullpen 