“I want to close my €3 M round by the end of the month.” –Why funding doesn’t come easy and how to set yourself up for success
Let us come down from Bubble Gum land and take a proper look at how things are really done in Europe when raising early-stage equity.
I am regularly astounded by young start-ups who contact us (The European Health Investor Network) for their fundraising and when asked what their timeline to closing is, they answer without doubt or humour “at the end of the month”.
Dilutive funding doesn’t come easy.
The process is tedious, long, and more often than not, you will find investors that have more reason to say no than yes.
So, get ready for a challenging process that can take anywhere from 3 to 12 months.
Know your 5 Ws & H
If you can summarize all your attributes and goals and demonstrate your added value, market fit, and efficacy data, all in a compelling presentation with clear financials then you are set for the next step. It all comes down to knowing your 5 Ws and H: Who, What, When, Where, Why, and How, and dressing it so investors will appreciate you speaking their language: Exits, ROI, valuation, and so on.
Do your Homework
If you are an early-stage start-up raising dilutive funding, you may have to contact Angels Groups, family offices, early-stage venture funds or even corporate venture funds in your own country and most probably beyond borders.
Each will have an investment thesis that may be restrictive regarding:
Stage of development
Time to exit
Fund size and cycle
There is no need to waste your bullets, time, and energy contacting the wrong investors. So be very thorough when doing your homework or get professionals to help you identify the ones you wish to attract to the table.
Let us now suppose you’ve aligned your ducks and are now ready to send out your great deck to the identified investors. What happens next? You wait and hope for an email that will either ask you further questions or invite you to a pitch. That is the best scenario that does not require, two or three reminders just to see if they have received your precious message while you wait in vain.
Let’s be positive and fast forward to your “pitch” tour where said investors are enthusiastic about your project and want to deep dive into all the hidden corners of your company/project/product/market.
The Data Room
Connections are made, networks are activated, and the investigation is ongoing. Prepare your contracts, IPs, your KOL contacts, financial statements, Cap table, certificates, assets, etc. Make it quickly available in an organised, transparent manner that will not only induce trust and professionalism but also speed up this whole Due Diligence process.
Then, according to the amount being raised and the number of investors involved, a lead will come forth, legal advisors will join in and discussions with all interested parties will hopefully lead to a Letter of Intent or Term sheet and finally CASH in your bank.
So, imagine doing all that in 30 days! Not probable.
From my own experience as head of the European Health Investor Network, the more you are raising and the more parties are involved, the longer it takes. My advice? Though this is hardly an exact science – plan ahead, get support and expect to add 2/3 months to your initial timeline.
Last but not least, cash is key, don’t be too conservative in your assessment of cash flow needs.
Hail to you, entrepreneur, for your enthusiasm and energy to bring your project to life and to nurture it towards growth.