Raising money can be likened to a sales process, but it can also be like dating. You need to court a prospective mate during the dating period before you get engaged, and ultimately married. Investors are no different; they want to put their money into people that they know, like and trust. This takes time. It is a process.
The process of raising growth capital
The process of raising a funding round is typically five to seven months. Prior to engaging with investors, you should do your homework about the most suitable prospective investors for your company and have a refined business plan, executive summary, and investor presentation.
Most prospective investors will want to see you a few times, meet some key people on your team, establish trust, see if you can execute to your plan, and measure your results in order to determine whether you can establish a track record.
Some tips for managing the courting process
I have raised over $200 million in equity financing for my companies, and I've never had an easy time raising capital for any one of them. It has always been a difficult and time-consuming process. But there are things you can do to assist in the courting process:
- Set milestones that you expect to meet or even beat over the six months it takes to raise a round. Make sure some of these milestones occur every month or two.
- Keep potential investors abreast of your progress, and let them know when you meet key milestones. I like to call people on the telephone and use face-to-face meetings for big news, and personal emails for other updates. Notifying prospective investors with a mass email or newsletter may be convenient, but it doesn't make people feel special, and it typically will go unread by your most important prospective investors.
- Use the milestones you have met as a way to establish credibility and a track record, and keep in mind that the opposite occurs if you constantly miss milestones.
- Try to get key decision makers to meet you in a more social setting after the second meeting. Lunches and dinners are best, but at a minimum, at least meet for coffee.
People invest in people
Investors invest in solid ideas with a good business model, but ultimately they invest in people. You and your team will need to answer: Why you? Why now? Why this team? You need to develop a personal relationship, trust and mutual respect if you are going to get people to invest in you and your company. The horse matters, but so does the jockey.
Taking an investment is a two-way partnership
If the prospective investor is going to take a seat on your board of directors or be intimately involved in your company, you are going to want to make sure that you know, like and trust them as well.
Ultimately, you want to create scarcity in your deal. Like it or not, most investors are followers. Everyone is looking for you to get that initial term sheet. A key in the process of raising outside capital is to find your 'anchor tenant,' or your lead investor. A part of this is knowing who leads investing rounds. Once you have a lead and a term sheet, the interest in your deal will usually ignite, as long as the lead investor is respected in the investor community.
Get the right investors
Keep in mind that it is more important to get the right investors at a fair valuation, then the wrong investors at a high valuation. The best investors will have applicable domain and technical expertise in your target product-market area. Make sure that your relationships are built on a foundation of trust, and not just wishful thinking. Don't get 'married' if you don't fall in love with each other, unless you want your life to be a living hell.