Early Stage Funding – The Rules of Attracting it

You may need to kiss a few frogs before securing funding for your business.

How many frogs can you kiss in 6 months? Fundraising is not for the fainthearted!

Anyone who has ever tried and been successful in courting angel investment will know only too well that the process of attracting investment into your company can be slow, time consuming and energy sapping.

It can be an all-consuming task that can keep a person engrossed full time over a number of months. The fastest I have ever managed is 3 months (from agreeing to fundraise, to cheque in the bank for the company). Others may have been fortunate to have got funded quicker, most will be familiar with a 6-12 month fundraising period but either way you’d best assess your ability to handle the task in-house.

1. Entering the landscape.

It may seem obvious to state but if you are considering raising angel finance for the first time, it might be helpful to accept that you are entering a new and foreign landscape. This landscape has its own rules and ways of working that will be different from other forms of finance like bank loans and/or government grants.

Imagine I had a sales job in b2c retail but then moved over to b2b software sales. I would have to familiarise myself with the differences in ways of operating and would have to get my head around all sorts of adjustments in terms of product shipping cycles, profit margins and cash flow issues.

Similarly, in the equity investment sector where business angels look to part with their money for a scaleable opportunity, approaching business angels for investment is not the same as approaching a bank for a loan.

Just because you and your investment proposition may seem to meet all the likely criteria that an investor would look for, you can still be far far away from gaining interest and you’re stuck not really knowing why. You may feel that you have all the boxes ticked that in pre-recession times would probably get you a bank loan, but with angel investors even if you did supposedly have all the boxes ticked with your mouth watering ‘hockey stick’ of an investment opportunity there are a million and one reasons why you may not get funded. The general consensus is that over 95% of businesses seeking angel funding are not successful in raising early stage angel investment. Still want to give it a go?

2. Do you have the resource capacity and capability to fundraise?

The fundraising process can suck you in and you may soon find that as the main force of driving your business forward growth or development suddenly take a back seat as your time and energy get deflected towards the task of courting investors.

As it is often said, your first fundraise is likely to be the ‘hardest deal’ you’ll ever have to do. It’s not just the kissing of numerous frogs that is the drain but also the subsequent dating process with the ones that show interest. As I said above, try to think 6-12 months of near enough full-time activity but beware of taking your eye off the ball, i.e. the businesses development or sales targets.

You may find yourself losing credibility and having to explain to investors why sales have dipped or progress has stalled.

If you are an established business, be careful that the fundraising process does not put stress on the businesses cash flow position.

3. There is free stuff out there – Make use of it.

For those of us in the UK, we are fortunate to have local government business support, we currently have the ‘Business Link’ support network across the country. Make use of them as you may be able to get free, or at least discounted support. There is of course a wealth of online material that can be read and accessed for free. There are also websites that can be subscribed to via RSS feeds, as well as informative podcasts that can be downloaded via iTunes. Call this your research phase and start it early!

Don’t miss the next in this series of articles which looks at why, when it comes to early-stage funding,  your first shot is your best shot…

This article was written by Aristos Peters a strategic advisor who undertakes fundraising, strategic growth development and NED advisory roles within early-stage companies looking to work up the steps of the investment ladder towards an exit. He works closely with angel investors, High-net-worth individuals With experience especially within the areas of digital, online, technology and media. His background prior to operating in the equity finance sector has been in b2b business development, sales and marketing/brand communications. He is currently putting together a business angel investment syndicate / accelerator, The Big Bang Syndicate and blogs at:  http://weklik.wordpress.com/

Want to know if your business plan is suitable for funding? Then why not take our quick and easy investment readiness survey and see if you can answer these key Business Angel questions…. http://goo.gl/2VJLX

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