There's a misperception in the startup world that when an entrepreneur pitches their business to potential investors, the investor pulls out their checkbook to invest immediately if they like what they hear. Voila! The business is funded, and the entrepreneur is ready to move forward.
The hard truth is that fundraising takes a lot of work, and the process can take weeks, months, or even years. To add to the frustration, it's not always clear to entrepreneurs why the process takes so long. If you don't know how long the fundraising process might take for you, you run the risk of underestimating the time needed, running out of cash, and losing your business altogether.
How long will it take for you to raise capital? The answer is, "It depends." It depends on a number of factors relating to the entrepreneur, the business, and the broader environment. Learn more about the 5 main factors which affect the timing of a fundraise to better prepare yourself before embarking on your fundraising journey.
1. The Experience of the Entrepreneur
If you've never raised money before, it can often take much longer to fundraise as a first-time entrepreneur than it does a "serial entrepreneur." As a first-timer, you have to build relationships with potential investors, and that takes time. You have to convince your investors that you will be a good steward of their capital and that you'll overcome the failure rate of many new businesses. You will be asked for many items in their diligence process which take time and effort to prepare if you've never assembled them before.
2. The Time of Year of the Raise
Many investors are not active during certain times of the year. For example, many angel investment networks do not meet at all in August or in late December/early January. If you start a raise during July, you may lose a lot of momentum when investors leave town in August. It can be tough to resume that momentum when they return in September. Timing your raise accordingly is key. The periods from September-December, January-April, and May-July can be good targets for this reason.
3. The Demand for the Round
If you're just beginning your raise and no investors have committed to invest yet, it can be hard for an investor to write the first check. Conversely, if you have a number of investors committed to invest, it's much easier to fill the remainder of the round due to investors' FOMO (fear of missing out) and a sense of scarcity. Demonstrating the demand for your fundraise (if it truly exists) can often push investors over the threshold to investing; otherwise, they will likely wait to see who else commits to investing and how the business evolves first.
4. The Relative Attractiveness of Other Entrepreneurs Pitching at the Time
If you're presenting to an angel group, they may see 10 companies throughout the course of a morning. Active angels receive multiple pitches in their inboxes daily. Knowing your relative attractiveness vs. other entrepreneurs in the market is important so that you also know how to stand out. If your peers are achieving certain milestones (e.g. generating revenues, obtaining patents, growing their user base, etc.) that you haven't yet, it may take you longer to fundraise as investors may want you to grow your business further and achieve similar goals before requesting investment.
5. What's going on in the broader economy
High net worth investors can be hesitant to commit to investing in startups when there is turmoil in the public markets and/or macro events (e.g. geopolitical conflicts) which create broad uncertainty. You need to be attuned to this and time your pitch accordingly. It's harder to ask investors to allocate money to long-term, illiquid investments when the markets are volatile compared to when they feel secure with their net worth and investment portfolios.
Every entrepreneur's fundraising journey is different. Yet, if you know the factors which determine the length of the fundraising process, you can at least focus on what's in your control (e.g. you and your business) while doing your best to be aware of things that are outside of your control (e.g. the macro environment). By giving yourself enough time and planning accordingly, you'll be on the right track to getting the capital you need to take your business to the next level.