It isn’t unusual to need to raise quick money, especially in uncertain times. With pandemic fatigue, the business world is constantly changing, lacking in predictability and consistency, and businesses are finding it more and more difficult to secure reliable capital.
What are some of the best approaches to keeping a lifeline alive when operating your business? How can you plan far enough ahead to ensure there are resources available when you need them most? These are legitimate questions and difficult to answer in unprecedented times.
Raising money is not usually a fast process, unfortunately. It can take months or years to foster relationships and create trust with potential investors. Nevertheless, here are some tips for beginning the process and/or continuing the process:
1. Seek Anecdotal Feedback from Other Industry Players- Narrow Your Target Group
- While this may seem obvious, many executives don’t take this step. Ask other companies for advice around fundraising and what has worked for them. Ask successful business entrepreneurs what their approach is and which funds or angels they have found reliable and valuable. It isn’t always about capital. Investors can become strategic partners, can open doors to other networks, and can be more ‘invested’ than providing a passive monetary investment.
Seeking anecdotal feedback around investors who have paid off (more than just fiscally but from a business perspective) may make all the difference in narrowing your targets for who you choose to foster relationships with. Time is of the essence and it’s better to nurture quality relationships than reaching out to a significant quantity of potential investors. Active investors may share an industry passion and may be more involved and aligned with the business vision than investors seeking a passive upside.
Further, we believe investors should be thought of as key players in a company and vetted almost the same way business partners and co-founders are vetted. At the end of the day, one hopes for a long and fruitful relationship with investors, one that drives the company to even higher levels of opportunity had that person not been involved in the business.
2. Seek Advisors & Seek Advice:
I participated in a regular panel of investors that often speak on Clubhouse (a social media app) in a Founders Q&A-type virtual ‘room’. That group of investors has given out tips on panels through an online ‘club’ called Angel Club. In that panel, it has come up numerous times among investor participants that “if you seek advice, you will likely receive funding, but if you seek funding, you likely will receive advice.”
Founders and executives who instead focus on delivering the right product or service and seek advice around that are likely to instill more confidence in a potential investor than someone approaching an investor specifically and solely asking for money. Of course there are exceptions to this rule, but it makes a lot of sense that one can foster a relationship with investors by asking for general business advice and demonstrating a dedication to the business they intend to grow, as well as seeking out information on the investor themselves to understand whether there is a proper relationship match. That could look like asking some of the following questions, among other more customized or targeted business questions, to such investors:
- What kind of team do you look for in a company that you like to invest in?
- At what stage do you invest? What sector do you invest in? What is your average check size? [Note: These are narrowing questions to ensure time is not wasted approaching investors that are not aligned with your business position or potential]
- What do you look for in determining whether to invest in a company versus its competition?
- How can my business show traction for investment purposes?
- [If later stage] What are the key performance indicators you look for?
3. Be Personal
Reaching out to a multitude of people in an impersonal way rarely accomplishes much when it comes to seeking financing. Sometimes founders approach multiple people for feedback on their decks or sales pitch materials in an impersonal way. Investors are busy and often targeted with this request. The best way to create a relationship of trust and impact, instead, is taking an approach that is (i) considerate of who the other person is (their sector and stage they invest in, their individual preferences, interests and character); and (ii) considerate of that person’s time, energy and efforts. Making a personal connection or pointing out something in common or a unique trait of the investor that caused you to reach out is likely to grab more attention than taking a generic approach. Making a personal connection is more likely to result from a targeted and thoughtful contact than a contact effort that is not individualized.
4. Think about Crowdfunding, Accelerator Programs and Other Avenues
Look into crowdfunding, accelerator programs and incubators and consider the variety of different options to determine the viability of alternative approaches. Sometimes a crowdfunding campaign can make sense, although it can involve considerable time getting ready for a raise and marketing and promoting the company. Certain times this comes into play when the company can appeal to a social good or greater community desire. Keep in mind if you raise money through crowdfunding that you will want guidance on the related regulatory requirements as well as ensuring you have a special purpose vehicle set up to take stake in the company (you do not want to end up with an inordinate number of individual shareholders on your cap table and always want to think about voting and governance issues as you go through a fundraising).
Regardless of your approach to raising money, we are happy to assist with both business and legal tips, including, without limitation, getting your corporate house in order; cleaning up diligence; preparing a term sheet or letter of intent; providing tips on structuring a raise (e.g. debt financing versus equity financing, crowd-funding, notes versus SAFEs, share or member interest sales). We also often consult clients on whether they want to change entity type in the context of going out to seek money (e.g. often with LLC conversions to corporations and other entity-type considerations and structural considerations that might go along with equity and debt financing considerations).