Raising money especially early-stage venture capital can be a monotonous, time consuming and ultimately frustrating process if you don’t know what is involved and importantly who your audience – the venture capitalist – is and what they are looking for.
From working on hundreds of fundraising assignments over the years, we’ve heard all sorts of misconceptions and unprintable comments about fundraising, what is involved, how long it takes and what hurdles entrepreneurs have to jump through to get the cash.
For us, it is a full-time job whereas for the ambitious company, it is a necessary evil that has to be done while all the time getting the MVP built, the IP locked-down, the team built, early adopter customers convinced, troops motivated and all before you run out of cash.
We thought it useful to set out in this paper a few observations about the fundraising process that we encounter all too often. Maybe you have uttered several of these yourself.
1 – “It would be easier to raise more money” – it is not easy to raise money at any stage and certainly not if the technology under discussion is commercially unproven. Fundraising is a competitive business whatever the sector and whatever the stage – money is both global and mobile and will flow to the best opportunities.
2 – “I need to raise some short-term interim money” – there is no such thing as interim money – if you need to raise ‘interim money’, it’s likely you’ve left fundraising too late.
3 – “If I was in the USA, fundraising would be easier” – US investors rarely have to venture further afield than their city, state (or in Silicon Valley beyond Sand Hill Road) for enough good quality deal flow. Put an ocean plus different markets, time zones, cultures and people between you and them and the odds of success shorten considerably. UK companies can raise money in the US but typically first need to have a presence there or be prepared to relocate and/or establish US operations.
4 – “Why is it called venture capital when they don’t take risk?” – any venture capitalist will tell you that they are in the business of identifying opportunities and taking manageable risks. They are accountable to their own investors for their funds (and jobs) and you can get them on-side by being cognisant of this and helping manage their risks.
5 – “My pre-money valuation is X….and I won’t transact for a penny less…..” – It is important to be aware of your worth and how much equity you are willing to sell and so be prepared to negotiate hard. Deals however can be structured in all sorts of ways so that headline price alone may mean nothing if there is a large liquidation preference sitting ahead of you at exit. To get the best deal that the market will offer, the best strategy is to often maintain competitive tension for as long as possible, close the deal with an investor with whom you think that you can work and to then get on with building your business without being too distracted.
6 – “We need money to invest in our technology” – Pure technology investors are thinner on the ground and any investment is likely to be tied to you achieving some sort of clear milestone. It is better therefore to consider investment in ‘bite sized chunks’ that is as much as you need to get to the next technical or commercial milestone (each a value inflection point), helping you manage the risk for the investor and your own dilution as you raise more money at successively higher valuations.
If you want an unbiased view of your investor readiness or likely appetite for your company or project then get in touch with our team on 01491579740.