When you put 20 CFOs – from venture backed to FTSE 250 companies – in a room and ask them their tips about fundraising, you might expect some interesting insight. When over half of those CFOs have raised money in the past 6 months – probably the worst time to raise money since the Stone Age apparently – you might want to listen extra carefully.
Why is this picture like a term sheet for most companies?
This is some of the collected output of our BLN CFO breakfast brainstorm, supported by BDO Stoy Hayward, this morning…
Three things I wish I knew before I started fund raising in today’s market .
- Who has actually got money?
- It will take longer than you can ever imagine
- Control the deal terms and participants as much as possible
- Who has actually got money?
Work out who has funds and an appetite to invest in your type of business. Some investors spend time talking to companies but do not have the capacity to invest – their funds are spent or reserved for follow on investments.
Ask investors questions that can help you understand their capacity to invest now: When was your last fund closed? When did you do your last new deal? How much did you invest in that round? Don’t waste time talking to investors who are in fund raising mode unless you want pitch practice. Investors are as bad as forecasting when their funds will close as sales people are at forecasting.
Another good source of information about the investors are actually active is to talk to some of the venture debt or debt providers. (The former are doing more deals than the latter but both should be able to provide good insight into the equity investors that are doing deals at the moment).
- It will take longer than you can ever imagine
Plan ridiculously early – 1 year before requirement is not too soon – and do everything you can to take blocks out of the process.
It is never too early to start planning to raise money, educate potential investors about the market you are in, get your due diligence pack organised, get your heads of terms agreed by the board up front so you don’t need to start talking about this as you are in a process.
Plan for it to take more time than you can imagine it to take.
Add a bit more time.
It will take longer than this.
- Control the deal terms and participants as much as possible
Agree objectives and terms with board as much as possible beforehand. Present terms sheets to investors. Get internal valuations agreed to set precedent to for outside shareholders. Keep warring investors away from each other (yes, they do fall out). Keep enough interest in the deal for as long as possible from as many investors as possible to keep your options open.
Do all of the above without once losing concentration from the main issue – running and building your business.
Easy peasy! (Although it has to be said that these CFOs work in some awesome companies).
Any other top tips?
Yeah, I have personally raised $2 million for my company in the last 6-months… just $450k in the last 30-days… and it was astonishingly difficult. I’ve never worked harder in my life! Good article — thanks for sharing!
I think there are places that are more open at the moment than ever before. We raised a really good (and fast) round in Q4 last year of £500K at a £5M valuation by going out to networks of angels and breaking it down into managable chunks (£25-50K). Going back to the market again (now VC) there is hunger for the right deals, just pick the right people who understand the proposition, have the cash available and want to spend it.