The Hard Truth About Raising Capital
Let’s face it — raising capital isn’t a lot of fun. It usually involves late nights, pitch decks, and far too much time with lawyers and in meetings. Ugh. Raising capital takes you away from the day-to-day of running your business and puts yet another task on your plate. When I speak with CEOs, the resounding theme I hear is just how long the process takes. Going from getting board approval to having money in the bank can take the better part of six months! While many factors that stretch out a capital raise may be out of your control, there are a few crucial things you can do to speed up the funding process.
5 Ways to Speed Up Your Capital Raise
1) Have a Plan and Deadlines
If you don’t have a plan and established deadlines early on in the process, it is very easy for things to slip from week to week. Pretty soon, days turn into weeks and weeks into months. Establishing a clear plan of action with appropriate deadlines, as well as communicating them to stakeholders, is key:
- I want to have my investor presentation ready by 1/1/14
- I want to speak with all interested parties by 2/1/14
- I want to have my data compiled and ready in a data room by 2/15/14
- I want to present to all interested Investment Committees by 3/1/14
- I want term sheets by 3/15/14
- I want to sign a term sheet by 3/31/14
- I want to close by 4/30/14
As you can see, even establishing tight deadlines can lead to a four-month process. Any slippage could easily tack-on a couple extra months to the process!
2) Know the Interested Parties
You can quickly reduce the time it takes to speak with interested parties if you know who those folks are. Before you start fundraising, figure out who’s interested in your business, as well as which investors could be most helpful with what you’re looking to accomplish. Once you have your pitch deck in place, you can simply reach out to those contacts to schedule update calls and get the ball rolling. By focusing on a small group of investors, you will greatly reduce the time required to raise capital.
3) Have Your Data Ready to Go
Another holdup in the investment process is waiting for the company to compile all of the necessary data request items that VCs are looking for. My recommendation is to gather all of this together far in advance of your capital raise (ideally, you are already collecting this data in order to manage your business). The best way to figure out what investors will want to see is to ask what they will need to see when you’re not actively raising. This way, you can figure out where the gaps in your data lie and fill them prior to raising capital.
4) Leverage Your CFO or VP of Finance
Much of the fundraising burden will fall on the CEO. However, he or she is only one person. They can only do so much without the rest of the business falling apart around him. During the capital raising process it is important that you leverage your team, and in particular the finance head. Chances are, they can handle much of the data requests that the investor is looking for. As a bonus, they will often be able to handle some of the introductory calls on your behalf, as well.
5) Pick a Partner and Negotiate with a Single Party
Once you’ve received your term sheets, create a scorecard that will rank potential investors on both qualitative and quantitative aspects. Doing so can help create objectivity and speed up the decision-making process. When you’ve figured out who you want to work with, inform that party that you want to make a partnership work. Focus exclusively on driving that relationship to a deal that works for all parties. Negotiating with multiple parties at this point can really cloud up your judgment, stretch out the process, and drive up legal fees!
Bottom Line: Increase Your Efficiency and Get Back to Focusing on Your Company
Fundraising is not meant to be fun or painless, but there are certainly ways to make it more efficient. I’ve seen people use a few or all of the tactics above with great results. Try them and let us know how they work out! I’m sure there are plenty of other ways to speed up the process — what have you seen work? Let me know in the comments section below.