October 8, 2014
It is a lot of hard work to raise money from investors. The process can be grueling and require leaping through a variety of different hoops as part of “due diligence.” Waveborn Sunglasses spent the past three months working with accredited investors to raise $500,000. Here are some of the best strategies to leverage at the end of the fundraising round.
Investors, like all humans, seek social proof. Tell each investor about another investor that he knows/trusts/admires/respects/etc. who is also investing in this round. They need to see that their friends want to put money in, too.
Create company profiles on all of the major investing websites, including Enable Impact, AngelList, Crowdfunder, and OneVest. The process of filling out their application and answering all of their questions will prepare you for investor meetings. It also allows you to send a simple link to investors with your executive summary, pitch video, company financials, current investors, and investment term sheet.
Pitch on stage at as many events as possible. Share the video. Waveborn delivered a fantastic four-minute pitch at Mid-Atlantic Venture Association’s TechBUZZ last week. Sharing the video footage with investors has proved to be useful in communicating our mission, business plan, and current fundraising needs. The goal of the video is to get the next meeting. The next meeting was at Tech Cocktail’s national startup competition in Las Vegas, where the top 50 tech startups from across the country pitched at Celebrate Conference.
Schedule as many meetings as possible. Meet every angel and VC you know. And then ask them to introduce you to three other angels, VCs, or business partners who may be interested. The majority of investors will not be the right investors for your company, but they probably know someone who is. Added bonus – you will get better at your pitch each time you talk to a new investor, and almost all are willing to give candid feedback on how to improve. Those who pass on this round are often the fastest ones to participate in your next round.
In related news, the best way to get a meeting with a potential new investor is to get a warm introduction from one of his trusted colleagues. Your existing investors are the best ones to connect you to other funding sources. It’s in their best interest to make sure you close the round promptly and refocus on running the business. Even another investor who decided to pass on the opportunity can provide a couple introductions to others in his network who should consider investing.
Understand the timeline for decision making with different investment groups. It takes at least three meetings before the checkbook comes out. Some investors can make decisions in 1-2 weeks. The NextGen Angels promise a decision and money in the bank within 30 days of presenting. Others like K Street Capital and Dingman Center Angels require more than a month’s notice to pitch at one of their monthly meetings, with additional due diligence required after the pitch. It often takes 3-6 months to close an investment round because of all the scheduling required for each round of meetings with each potential investor to finalize the terms, sign the paperwork, and wire the funds.
Allow for more than one closing date, especially when oversubscribing the round. It is good deal hygiene to finish with more funds that your original target. By knowing the timeline of different investment groups, you can forecast the need for a second closing date to include slower-moving entities on the same terms. Don’t waste time renegotiating terms after you have already closed the round, but be willing to take on additional investors on the same term sheet.
Highlight the scarcity of the opportunity. The deal is closing and all funds must be received by October 15, 2014. Having a concrete end date is imperative to force investors to make a decision. Getting a straight-up no is better than a “maybe…can you tell me more about X?” The extra due diligence from other investors who end up not investing will take up a large portion of your time. Prioritize your one-on-one time with investors based on the size of their investment and likelihood of investing.
Raising money is a full-time job. I hope that the strategies and techniques included in this article can be helpful to other entrepreneurs raising money and make their jobs a little easier. Make sure you also select the best investors for your startup.
Let us know in the comments below what other strategies have worked for you to promptly close out your fundraising rounds.
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