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Prep

Funding 101: Prep

 

Getting through the fundraising process means knowing what to expect.

Chances are, you haven't done this before and there's no possible way to know what to expect! Don't worry, you're not alone. Most entrepreneurs have never raised capital before and have no clue about how the process works.

Because of this, there are quite a few misconceptions about fundraising and the expectations that go with it. Let's take some time to dispel some myths and hopefully set more realistic expectations about funding procedures.

We would all love to get our fundraising done in as little time as possible, but the reality is it always takes much longer than we expect.

It's not uncommon for a successful fundraising campaign to last six months or longer. The challenge is that there are many hurdles to finding the right investor and agreeing on the right terms.

In many ways, fundraising is a form of speed dating where both parties are not just looking to date; they are looking to get married. While the romance may happen quickly, it's a big decision that requires a bit of time before both parties are ready to say "I do."

A capital raise that happens in just a few weeks is the absolute exception. Typically that will only happen when the investor and the entrepreneur have a pre-existing relationship that they are building off of. In the case of two people that have never met, they are calibrating on two planes - both personally and based on the business itself, and that simply requires time.

The type of funding you are raising also matters. Setting up personal credit can be done in as little as a week. But if you're doing a more advanced form of fundraising, which requires investors to meet with you, perform due diligence, and agree on complicated legal work, that can easily take a few months.

 

You May not be Fundable Yet

Throughout the lifecycle of a company there are different points where a company is more or less fundable to potential investors. We explain the Evolution of a Company here.

For example, if you're still at the Idea Stage in your business, and you're pitching a venture capital firm that tends to invest in companies that are already formed with serious traction, you may not be the right candidate for that capital at that time.

This tends to happen most often when entrepreneurs are looking for more capital than the stage of their company can yield (which frankly, is just about all of the time!)

The more realistic you are about aligning your stage of evolution with your available funding options, the more realistic your funding outcomes will be.

It's helpful to be pragmatic about what capital is truly available to you at each stage in your company's evolution. If you are at the pure Idea Stage, then there's a good chance you're most likely only ready for basic forms of credit to get you started. The more realistic you are about aligning your stage of evolution with your available funding options, the more realistic your funding outcomes will be.

Give Yourself Options

It's easy to be lured into the idea that one investor who seems excited about your deal will be the last investor you will ever need to speak to. We hope for your sake that's true, but just to be safe, try not to put all your faith into just one funding source.

It may takes months to woo a new investor into considering your deal, but only minutes for them to call you and tell you it's not going to happen.

It may takes months to woo a new investor into considering your deal, but only minutes for them to call you and tell you it's not going to happen. The only way to counter this fact is to give yourself multiple funding options and pick the one that works best for you.

That means not only talking to multiple investors, but talking to multiple types of capital sources including credit, debt and equity. Remember that you can always say "no" to a capital source you don't want in favor of one that you do. But it's always best to create as many options as possible.

Summary

There is no "fun" in fundraising. We'd love to tell you otherwise, but it just isn't true.

There are thousands of entrepreneurs looking for capital for every one check that will be written. It's not fair to assume that the process will be easy, or for that matter, less competitive. Very few entrepreneurs make it across the goal line to a funded company, which means you need to do everything you can to properly prepare, research and pitch in order to be successful.