Wednesday, September 26, 2012

Fundraising Will Take You ~3 Months

A number of entrepreneurs I have met with lately seem to have unrealistic expectations about how long it takes to raise a seed round of funding.  Everyone has a friend of a friend who raised their first round "in a week or two".  The reality is that with the exception of a few hot company outliers, each round of funding should take 2-3 months from start to close.  So what takes up all this time?

1. Honing Your Pitch.
Your first few pitches will likely suck.  Take a few days to practice your pitch on advisors, other entrepreneurs, or on angels you really don't want to raise money from.  Else you may spend a few weeks getting nos before rev'ing the pitch anyways.

2. Scheduling.
It can take 1 to 3 weeks from an intro to actually meeting someone in person.  For a seed round you will get rolling intros over many weeks or months.  Angels you meet with will refer you to other angels,   or VCs will want you to meet additional partners at their fund.  This tacks on additional weeks to the process.

3. Follow ups.
A subset of investors will ask for follow ups (data, team bios, references, etc.).  It will take you a few days to pull together the information requested and for them to reply or clarify.  If an investor asks for too much follow up with little investment on their side, cut them loose.

4. Putting together the syndicate.
Once you have a set of interested investors, you need to:
a. Gauge valuation.  What valuation will get the best people on board without you giving away too much of the company?
b. Determine allocations.  How much should each person invest in the round?  E.g. do you want any one investor to control the voting privileges of an equity round?
c. Close the first dollars in.  The first few committed investors are always the hardest.  Once the round starts to come together, everyone will fall in quickly.

5. Rolling in the stragglers and late-comers.
Sometimes it is wise to leave a small amount available at the end of the round to roll in a few really valuable investors you meet in the end.  Alternatively, collecting wires from everyone may take a week or two.

If you are raising a Series A or B, it will likely take 2-3 months as well.  The process for raising the round is different and outlined here.  However the timeframe needed is the same a seed round.  This means you should plan to start raising your series A when you have 6 months or more of money left in the bank.  Anything less, and you might find your back up against the wall.

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