Successfully Closing Start-up Financing
Raising capital for a startup can be a slow, painful process. Making a list of fundraising prospects, scheduling appointments to pitch your opportunity—the whole idea of asking for money, period. Most entrepreneurs would rather spend their time and energy running their business.
Unless you are a sales whiz, you can expect to fall within the average range of at least four to five prospects contacted for every one investment deal closed. Considering you may need as many as 10 investors, this can prove time-consuming to new business owners—even daunting.
The better approach is to improve your close rate from about 25 percent to closer to 75 percent or greater. Here are a few words of advice for getting the job done:
1. Pick a closing date, but be flexible.
Closing dates are critical when raising large sums of money due to interest rates. That means the cost of delaying your closing can be substantial. But closing date or not, angel investors will you money when they feel like it. That makes your closing date a moving target, although investors like to see a closing date because they like to feel a part of a larger crowd making a similar investment. Have your lawyers make a minor change in how your document is worded to include the exact closing date, along with the phrase, “or another mutually agreed upon date.” This minor change will keep your documentation valid for several weeks after the closing date.
2. Offer multiple investment options.
Take-it-or-leave-it terms are all but a thing of the past. If you need to raise money in the form of debt, it may be better to offer two or three options for participating in the round, such as different amounts or thresholds or time horizons, or even different repayment schedules.
3. Anticipate follow-up meetings.
Try to end each pitch by agreeing on a specific date and time to meet again. This keeps the wheels in motion with potential investors. It doesn’t matter if you could provide all the information necessary at the first meeting, it is better to hold back and draw out the discussion across two or three meetings, to allow potential investors to be comfortable with you. Also, plan to schedule reference calls from previous partners, investors or board members toward the end of the deal to help close.
4. Ask about challenges.
As you near the end of the second meeting, it is often advantageous to flat out ask what doubts or concerns our potential investors have before making the investment. This information will not only help you give a heads up to reference callers about potential tender spots, but will also help you understand whether or not you are capable of eliminating these concerns or not. For those reasons, this is an important question to ask.
5. Take off your sales hat.
Once your investors have made the decision to invest, back off the sales talk. Let the process run its course and the paperwork reach completion. Don’t turn off investors or help them to change their mind mid-stream because you can’t stop selling. You will make others wonder why you are so eager.
6. Go for the money.
There are a lot of hurdles on the way to financing, so be careful not to get snared into any of these negotiations. Remember the purpose of it all is to raise capital, so keep your eye on the target. You may even find that you get funding faster if you ask for it earlier in the process. Go ahead and ask your investors if he or she plans to pay by check or wire transfer if the process needs a nudge. Sure, if your timing is off and you ask this too early, it will be presumptive. But timed correctly, it tends to move dialogue along quickly.
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