This is Part III of a four part series.
Approaching the Market
Preparation as described in Parts I and II of this four part series will help to improve your chances of success when it comes to securing money from investors. Here are a several items to consider as you begin to schedule meetings.
Build a pipeline report - As with any good sales effort it is important to be organized and to communicate with your team and advisors in a consistent fashion. Research and create your list of target investors. Be sure to include all of the relevant information (Firm Name, Address, Contact Info) as well as the individuals that you reach out to, dates, type of communication and follow up items. Most important is to develop a nomenclature for steps in the process and know where you are with each firm. More on this later.
Open in Peoria - There is an old expression that I believe comes from the early days of theater or music that advises one to “open in Peoria” which I take to mean try out your pitch on a few less notable prospects. That way if it doesn’t go well you haven’t done too much damage to your brand. Be open to feedback and process what you hear.
Try to control the pace and the agenda - First, you want to try and get a few firms interested and moving at the same pace toward due diligence and an eventual term sheet, or term sheets. Use your pipeline report to manage to pace as best you can to keep firms moving along.
Also, it is important to understand each firm’s process and know where you are within it. Know who will be at each meeting, what the expectations are for the meeting, and who on your end should attend. It may not make sense to drag your entire team to a meeting if the purpose is to meet with an associate for an initial screen. Match the people to the process and the content. Not sure who should attend? Ask who will be in attendance on their end. This is also a good way of knowing where you are in the process. The goal is to work towards the “all hands meeting.” This is similar to being asked to have dinner with your significant other’s family. You know things are getting series when you are asked to meet the parents and siblings.
Hope for the best, but plan for it to take time - Entrepreneurs are naturally optimistic, but you must temper this with the reality of the seasonality of the venture industry and the process steps of each firm. Depending upon factors that are not within your control, the fund raising process can take months. Sure, sometimes lightening strikes and things move faster than you had imagined. But in most cases it can seem like a slog that can drag on for weeks or months. Again, know where you are in their process and if you are indeed moving through the funnel or not.
Get feedback all along the way - Some firms are good about giving feedback. Some are not. You simply don’t hear from them and they don’t return your calls. Nothing that you can do about that, but try to get some immediate feedback after each meeting to assess interest and potential next steps. Try to avoid having “happy ears.” This is a condition that strikes entrepreneurs where the only feedback they hear is positive. Remember that no one likes to call your baby ugly so sometimes you have to listen hard and read between the lines.
Raising money is sometimes a law of large numbers game and it can also be humbling. Be sure to run it as a process and be honest with yourself about where you stand with various potential investors. Although it is difficult, you must put a stake in the ground with regard to how much time you plan to be in the market raising capital. The longer it takes, the less your chances are of getting from seed to Series A. Knowing when to quit is very hard especially when you have an investment of time and money in the project.
If you have enjoyed reading this four part series and would like to learn more about raising and managing cash for your startup then check out my self-paced, online class Founder Finance as well as other classes for entrepreneurs.