Raising money can seem like climbing the Penrose stairs—an impossible feat. It can take forever, and you may never be successful, especially if you've never done it before. Fortunately, I learned firsthand from master fundraiser Seth Goldstein, who has raised more than $100 million over the past 20 years, on how to speed things up and ensure the funds get wired. In our new book, The Secret of Raising Money, we explain exactly how to get those funds, faster. What are some of our best tips?
1. Fully Commit
First and foremost, you must be 100 percent committed to fundraising. Avoid the temptation to dip your toe in and "test the market." To speed up the process, you want there to be competition within your round. And in order to generate competition, you need to have as many conversations as you possibly can. This takes considerable effort over a period of weeks or months. Investors are incentivized to retain optionality for as long as possible. And without competition, they have no reason to give you an immediate answer.
2. Prepare and Practice
Don’t just wing it. You will have to deliver the same pitch again and again, so get feedback from friends (ideally, investors) before you start raising. Also, make a list of expected objections and how you will respond to each.
3. Find a Lead
Once you have found a lead investor to take a large portion of your round, you will be able to close the remaining funds far more rapidly. As a rule, investors will be more comfortable coming on board when somebody else has taken the initial leap. It’s certainly possible to close a round with no lead (you must use convertible debt), but raising with a lead will always be easier.
4. Use AngelList to Create Momentum
AngelList is a highly efficient tool for building and leveraging momentum. Use InvestOnline, add recent investors, and have them promote you to their followers. Get featured if you can. (Learn more about optimizing your AngelList profile here.) Remember that AngelList is frequently the first place that potential investors will look when trying to learn about your company’s raise, so you must manage it accordingly.
5. Ask Recent Investors for Introductions
Warm introductions from investors who have just put money into your company produce high-quality new leads. The introducing investor has given you the best stamp of approval available—his capital. Hence, the odds in closing the new investor are already stacked significantly in your favor.
6. Have All Due Diligence Items Ready
Before you get into conversations, make sure you have all the standard due diligence documents prepared. Some common examples include pitch deck, company financials and projections. We discuss these at length in The Secret of Raising Money, but the bottom line is there’s no excuse for delaying your own process because you need a few days to prepare a requested document.
That said ... provide as few due diligence items as possible. Remember: Every due diligence item you send has the potential to raise more questions and derail the process. Only send files that the investor has specifically requested. If you receive general, nonspecific requests, do not unload every document you have available, but pick and choose. (As the saying goes: "There’s nothing like numbers to ruin a good story.")
7. Wait for the Wire
Relaxing once an investor has given you a verbal "yes" is a natural instinct. Avoid doing this at all costs. Investors can and will get cold feet, even after they have confirmed their participation. Continue to push for the close until you can see the cleared wire in your bank account.
8. Use Echosign
We are in the 21st century. Every step of administrative overhead is another chance for the investor to back down or for some other obstacle to arise. Use Echosign (or a similar platform) to remove all friction and condense the closing process.
9. Raise Money When You Can, Not When You Have To
Finally, if you haven't formally decided to begin your raise, but you have real inbound investor interest (in the form of serious offers or term sheets), you should very strongly consider taking the money. This is not a hard-and-fast rule, but unpredictable calamities could arise. So assess any opportunity for certain, immediate financing very carefully.
Michael Simpson is the co-author of The Secret of Raising Money as well as the co-founder of DJZ, funded by Kleiner Perkins, Google Ventures, Index Ventures, True Ventures and others. He spent two years in M&A investment banking at Greenhill & Co, is an active angel investor, and graduated from Yale College in 2010. He is also a member of Young Entrepreneur Council (YEC), an invite-only organization comprised of the world's most promising young entrepreneurs.
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