Before diving into the the nuts and bolts of the backbone of a successful capital raise, the pitch, there is a final element to fundraising preparation that needs to discussed: when exactly you should start your raise.
Those who have raised funds previously know that the process inevitably ends up being lengthy, probably lasting longer than initially anticipated. The considerable time required to raise funds can prove to be quite problematic, or at least highly stressful, as the need for cash to finance your business becomes more pressing.
Therefore, it is crucial to give yourself plenty of time to complete your round — at least 12 months prior to when you’ll need the money for offline fundraising and 6 – 8 months for raising capital through equity crowdfunding platforms such as Eureeca, which can reduce the length through increased efficiency.
If you’re not careful with your planning, you’ll find yourself in a position of desperation, which can be exploited by investors who will be better positioned to negotiate more favorable terms for themselves.
The crunch on your finances caused by poorly planned fundraising can also force you to make business decisions, such as laying off staff or reducing marketing spend, that can negatively affect your growth trajectory. These decisions are often avoidable if capital raising is properly timed and executed.
In addition to allowing for enough time to comfortably complete your round, you Ideally want to try and time your raise around a catalyst event such as product launch, marketing campaign, or expansion into a new market. This will allow you to package the round with a buzz-worthy happening, making investment in your business more appealing. Of course you may need the capital in the first place to have such an event but it’s certainly possible, with the proper foresight and planning, to accomplish this.
Whilst showing promise is of course necessary to attract investment, don’t try and make your business “perfect” before starting a raise. First, it will never be perfect so this is futile. Second, investors want to get in while your business is on the way up, not at the top. Future growth is where the money is made.
How to exhibit this will largely be covered in this column’s upcoming installments on pitching but this notion of being rough but showing upward trajectory, rather than super refined is worth keeping in mind as you plan the timing of a raise.
Remember, you should be raising enough capital to reach your next milestone — what this milestone is should be carefully planned and actionable — and not more. While investors are interested in your long-term exit strategy, the savviest among them will be more interested in your ability to reach the next growth milestone with the capital raised this round. That is what they are investing in.
Another important factor to consider is the cyclical nature of funding, the ebbs and flows of capital according to the time of year. This is especially important here in the UAE, where things pretty much shut down during the summer months.
It is typically best to try and close a round either in December, at the close of the year when VCs are getting their final investments in or when a three-month crowdinvesting round has had time to unfold after summer ends. Similarly, May — before the summer slowdown — is another good time to try and close a round as well.
Lesson Four: Don’t underestimate the time it will take for you close a capital-raising round and get your money in the bank. Plan ahead and give yourself plenty of time in order to avoid situations of desperation.
Be aware of the numerous secondary timing factors that can affect the success of a raise. Of course it’s difficult to get all of this timing right as you run your business, and there will always be unforeseen circumstances to contend with, but this is the point: plan for the unexpected and you’ll be off to the right start.
Read Part 1 – To raise, or not to raise?
Read Part 2 – Who should you raise from?
Read Part 3 – Debt vs Equity Financing