Getting fit for fundraising

A recent blog by Fred Wilson resonated with me and motivated me to write my next blog. In his blog, Fred reflects on the decision by WeWork to postpone their listing and uses the term “hair on a deal” to describe when a deal has too many issues which ultimately kill the investment. The critical lesson for entrepreneurs he highlights is the importance of having your house in order before starting to raise capital.

At Rapid Innovation Group, we believe that companies need to be “investor ready” and fit to raise. The analogy that I used recently with a company was that if an inactive and overweight 40 something year old (guilty) declared that they were heading straight to the track to run a 5-minute mile this would be viewed incredulously. Why? Well, obviously, they are totally unprepared both physically and mentally to be successful. How could they achieve this goal? However, if the person said that they were starting on an 12 month programme with this as the end goal and that they were hiring a personal trainer with a background in track and field, a nutritionist, physiotherapist and a sports psychologist to help them achieve this goal, then you might view their declaration as viable. If this was further backed up by a plan divided into clear blocks with defined milestones which involved shedding excess weight, building the body strength required for the distance, and fine tuning their technique,  then you would start to believe further and might even contribute to their GoFundMepage.

 

Similarly, companies need to get fit before attempting to engage investors. We have developed an audit tool to help companies understand their investor readiness and to identify the gaps that need closing before beginning a fundraising process. This invariably requires the investment of time to bottom out the gaps. The amount of time required is a function of how much fitness work needs to be undertaken.

But as we all know, early stage companies tend not to have time on their side particularly when it comes to fundraising. So, you need to begin this process well in advance of starting your next fundraising.  You need to assess how far away from readiness you are and what you need to do to close the distance. You need to make sure that you have enough runaway to enable you to execute these tasks (remember running out of money is not a reason to support a raise). You also need to know what investors will expect at your stage and how much hair they can stomach. The key here is to begin your investor training/preparedness in sufficient time before you need to raise. This will make the period from investor engagement to deal closure run as efficiently and effectively as possible. Although this is no guarantee of success, it puts you in the optimum shape. As Abe Lincoln once said “give me six hours to chop down a tree and I will take four to sharpen the axe”.