There are many misconceptions out there about raising capital — one of the most prominent being the length of time it takes to complete a round. It is very often underestimated and therefore miscalculated in terms of resources, commitment, and runway. Unfortunately, it’s never quite as easy as going to market and landing the first investor you have coffee with.
The capital-raising process typically takes much longer than anticipated, so entrepreneurs need to plan for that — then you will only be pleasantly surprised if it goes any other way. Despite this, there are things you can do to give your company the best chance of raising your round as quickly and efficiently as possible.
What am I even Raising?
Pre-seed, post-seed, pre-A… what do these all mean and how do you correctly classify your round? They are continually evolving into new classes, but to keep things simple I’ve broken down the rough categories below to provide guidance for where you may fit.
*Please note this is based on typical software companies.
A good tip to keep in mind is that you are going to be judged and compared by investors to your peers in your round category. So if you’re where you best fit, generally go with the lower round classification based on your metrics, so you can lead in your cohort as opposed to falling short in a more competitive cohort. An extra factor to consider is where you are raising your round. For example, a Series A round in New Zealand will likely equate to a post-seed round in a US context based on the different traction expectations.
So How Long Does it Take?
The timeframe and complexity of raising capital depend on the stage and sector of the business, and the team running it. A general rule of thumb is ensuring you are prepared for at least 6 months of raising. A very quick raise may take 3 months, and a long raise may take 9 months. If you’re going over 9 months, it’s likely time to take a step back and consider why it’s not working.
To understand the process better, a simple framework for the capital raising process goes through the following 7 steps:
What can you do?
“If you come in with a theory, and a plan and no data, and you’re 1 of the next 1000, it’s going to be far harder to raise money.” — Marc Andreessen
Understanding and anticipating investor concerns is a great way to mitigate the risk of issues arising during the raise which can prolong it unnecessarily. Some common factors to consider which may have an impact on your raising process include:
- Your metrics (are your numbers strong enough to support your story?)
- Location (are you raising offshore, or are you targeting domestic investors?)
- Type of investor (are you targeting angels who have more flexibility, or VC funds who have a very structured process?)
- Time of year (don’t raise just before Christmas!)
- Quality of your pitch and pitch materials (don’t underestimate the time and effort these need)
- Readiness of due diligence information (the sooner you prepare, the better)
Most importantly, make sure you are gathering all of the feedback you can! Politely ask every investor for feedback on your pitch and — if they give it to you — take it seriously. Don’t take one investor’s sole criticism as gospel, but keep the advice in mind and try to gain value from it.