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Don't underestimate how long funding takes

Stashed in: Founders, 106 Miles, Venture Capital!, Tech biz, Angels, @angellist, Funding, Business Advice, Startup Advice, @msuster, Rising meets Risen, Startups

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Don't forget that you see other companies at the successful conclusion of the process, and rarely find out how long it took... so you often get a false sense that it was quick and easy. When you actually talk to entrepreneurs, 6 - 8 months is not unrealistic!

No kidding. I am having a hard time with the disconnect between investors who espouse leanness and agility and then take a week and a half to return emails. Hire an assistant, chumps!

You can make progress in anything if you have the mindset that it will take 50 meetings.

Mark Suster had seed funding thoughts from a VC a few years ago, but he doesn't really talk about timeframes.

And a year ago Nivi from VentureHacks talked about raising a seed round with no lead, and he writes about seed round valuations, but he also does not talk about timeframes.

And Daniel Odio put together resources for raising $1 million in seed funding.

See also six secrets of fundraising success.

And for pitching see five magic slides.

Jeffrey, the thing to keep in mind is: everything takes longer than you think it will. :)

David S. Rose, an active seed investor, says 6-9 months is not unrealistic, just as Joyce says.

David's best case:

If you had a great product, positive beta testers, were located in an area (like SF, NYC or Boston) with an active angel and early-stage VC population, were connected enough to directly reach out to angels and or a local angel group, were flexible in your deal terms, and were in the right place at the right time with the right product. In that case, it would typically take you about three months from pitch to close, to pull together a round, work through the angel/VC process and get the cash you're looking for.

That's worth repeating: three months is the best case; 6-9 months is more the norm.

Those seem like accurate averages. There are seasonality factors as well - David Shen's post sums that up. And Naval spoke several times about "readiness" for funding in his talk at Founder Institute and I think that readiness accounts for the quick fundings we hear about on Angel List. (Ready, Aim, Fire!)

Thanks for those links, John -- I've noticed in 2011 the hot word is traction, although I've noticed that everyone's definition of traction is different.

Perhaps I asked the wrong question when I asked

How many users can a new product get in 3 months?

In doing more web research I do see 9 months thrown around a lot. It takes as much to close a funding round as it takes to have a baby!

Heh, I buy the birth analogy... A bit of fun at the start of the process, a lot of hardship and suffering along the way, a painful experience at the end and then - WHAMMO, welcome to the starting line! By the way, I agree with David Shen's guideline about not raising money in the second half of the year.

In which case, just take the next six months off and start from scratch in January?

Sometimes you gotta do what you gotta do...

Are you proposing pausing development until the funding happens?

Of course not! Be ready for slower progress in second half and raise an amount so you can avoid that period when you're back for your next round. And don't pause development for anything!

Don't pause development, but plan on it being tougher in the second half than the first half, and plan accordingly.

There's another Convo that says to make progress -- in this case, get a decent term sheet -- the rule of thumb is that you need 50 coffee meetings: http://pandawhale.com/convo/197/you-can-make-progress-in-anything-with-50-coffee-meetings-get-started-msuster

It's a good rule of thumb in that it makes you realize it takes more time than you think it will.

Agree. I probably talked >100. Even in best and most heated of situations, I'd advise founders to take their time and not close too quickly. You're getting into a professional marriage, and it's worth getting to know your investor as well as possible before you commit to anything.

The dating analogy is quite apropos.

Dragons Den gives five ways in which investing is like marriage.

Of those five points, my favorite is #1: The key is communication and shared goals.

Which is why it's important to have a feedback loop as time marches on to see where everyone stands with regards to the shared goals.

As a guy who's been both on the entrepreneur side of the table on (now) on the VC side of the table, I think it's right to assume it'll take a while, although it shouldn't be 6-8 months, and always depends on a mix of (1) the current environment, (2) the stage of the company (seed rounds should be a LOT faster, obviously, (3) the dynamics of the partnership that you've got in the lead position, and (4) personal characteristics and situation+workload of the specific partner at the firm you're working with.

On many series A raises, you're doing prep work in the months leading up to the raise, maybe a month or two. The actual meetings with investors should probably take a week or two for initial meetings, a week or two for followups, maybe a week or two for full partnership meetings, then some time wrangling over terms & langauge & doing legal diligence. And then you often don't announce funding for a month or two, so that can make things seem longer.

That describes more or less how things work when the environment is functioning normally. The environment is NOT functioning in a particularly normal way right now. Lots of very quick activity, but also lots of uncertainty from some firms about the macro environment.

My own current view is that that uncertainty, plus the very large number of companies that will fund raise in the next few months (virtually everyone, I'd say), will tend to dilate all processes except for the very hottest companies, which will, if anything, get accelerated.

So overall, pretty lumpy, I'd say.

John, these are good rules of thumb, and in general my advice to others is everything depends.

That said, I agree with Joyce's original implication that Fundraising takes longer than you think it will, so set your expectations properly.

You make some very good points about all of the ancillary work:

  • Prep work
  • Initial meetings
  • Follow-up meetings
  • Partnership meetings
  • Negotiations
  • Due diligence
  • Legal back-and-forth
  • ...and then months might go by after close but before announcement.

It's a lot of work. As an entrepreneur, if you go into the process with that understanding, you'll be less disappointed when it does take longer than you think it will.

What a useful discussion thread! I want to propose that every entrepreneur who incorporates their start-up must be forced to read this kind of 'real-world-wisdom' threads from other entrepreneurs. It is unfortunate that much of this wisdom stays hidden in people's minds, and gets unzipped only when questions get asked.

Seriously, FUN is only there in the word 'FUNding' but in reality, it is not fun at all. A fantastic learning experience for sure!

Ravi, you have a great attitude.

This Web page was featured today in this Forbes article.

Also, I've created a Funding stash and added to it useful articles I've found.

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