One of the most important things to understand about angel (and other) funding is the amount of time it takes between when you start the process and when you start to get money. I hear stories now and then about people who give a presentation and get hundreds of thousands or millions of dollars in a few days or weeks.
This is contrary to my experience and the experience of companies I know who have sought such funding.
I spoke earlier today on a call with a company in the process of getting funded, and I regularly attend advisory board meetings on other companies in the funding process. They report approximately the same thing this company reported, and I reiterated it to them on the call to make sure. Here's a reasonable expectation of the timeline:
Start looking for funding
30 days: applied to 30 angel groups (filled out the forms diligently and carefully).
60 days: screened for presentation and invited to present to a few of them.
90 days: presented to several groups - got sign-ups for further discussions.
120 days: Due diligence committee formed and process underway.
150 days: Due diligence done (if you are prepared when you start) - a few initial investors (10% of the round committed 2% filled).
180 days: Present to that group for possible funding (go to multiple locations who accept the DD that month) - 20% committed 5% filled)
210 days: Close some more of the investors, continue to make progress in the business, meet some goals - 30% committed 15% filled
240 days: Make progress against goals, close another 10-20% of the round 50% committed 30% filled
270 days: Make more progress, 50% filled, 70% committed, get a fund or two to review the opportunity
300 days: Close a fund, perhaps two, 90% committed, 75% funded
330 days: 100% committed, 85% funded
360 days: Round closed.
Yes, that's a year!
Many entrepreneurs fail to understand the implications of this as they start their efforts to build. They imagine that you go to a group, the say "great idea!" and they immediately give you a pile of money. But the reality is that angel investors very often take their time, read the due diligence reports repeatedly, wait until cash demands further investment, watch as risk goes down (when you make your objectives) before investing further (or at all), want updates monthly to keep you on their mind and track your progress, and "soft circle" commit but don't immediately turn the commitment to cash.
It's not that they don't trust you. But then again... trust is a two way street. The more cash you have sitting there, the more the potential and temptation for abuse. Startups have to run lean and mean, and having too much cash is problematic. If you are proving out a concept before expanding in the market, the two phases follow one from the other. Funding to get you enough cash to continue to prove the concept may continue until the concept is proven, in small traunches, as you prove one part after another. Each step, you bake out some of the risk by meeting or exceeding an objective. If I put all my money in up front and you don't meet the early objectives, I lose more and you get funded for something that fails. If I wait and give you enough for each step as it comes up, and only if you make the objective or the updated calculations show it's still a good investment, my risk is being baked out as I put more money in, and you are not being significantly slowed down by the cash flow limits.
A far more important thing I likely bring as an investor is assistance by insistence. I insist that you show me what's going on and that you are on top of it and that assists you in tracking and adapting in time to be successful. Also, the tracking of your business progress tells me when you are ready for opportunities that may arise.
I also reward my investments over time by bringing them opportunities as the opportunities come along. I won't introduce them to an opportunity they aren't ready for yet, because it will reduce my credibility and theirs, and that means that they and I lose future opportunities. By holding them to the fire on their objectives and rewarding good outcomes with further investment, investors keep the startup and all the other startups in the ecosystem moving at the pace they can move and cull the herd as the drive to success continues.
Being (a) patient
All of this brings me to the issue of being (a) patient. Patience, many of us are told when young, is a virtue. But in my experience, it is more of a necessity. It is a requirement of getting angel funding. I am not patient by nature. so it took me a long time to come to understand that it's often better to understand and allow deliberate action to percolate.
On the other hand, while I don't want to be a pain, it drives me to near insanity and physical discomfort as I lose (read pull out) my hair and grind my teeth at night wondering why it takes so long for people top make up their mind and act. If you think it's a good idea and you think I know what I am doing and my company is worthy of trust and the investment is potentially lucrative with acceptable risk profile, why do you wait?
The real challenge is to not make yourself a patient while being patient. If you get over-anxious, you will trigger your own stress responses and start to say and do things that will lose the confidence of investors. If you say you have a short runway then they will feel pressured, but if you have a long runway, why do you need my money now? If I call you more often, you might get pissed off, but if I don't call you at some point, you will forget me and put your money into something else.
How do you think I know?
When I was quite young, in an interaction with my parents, I indicated that I was the 2nd toughest kid in the class. My father asked "How do you know?". My answer: "How do you think I know?". I guess I was not formally admitting to the basis, but it was clear how I knew. In a subsequent incident I became the toughest kid in the class, but we'll not get into that.
My view of getting pissed off and screwing things up is from experience. I have recalled some of these experiences in other articles in this series and am not likely to run out soon. However, I am holding my own against my nature for now, and haven't gone over the top in some time. I seem to recall that for the last several years I have felt as if I were being too polite and accepting of things that should not go wrong. And I sometimes recall "Don't get mad, get even." and other similar expressions from my youth.
I think it's really just a matter of understanding and getting comfortable with the idea, hopefully based on information about the reality replacing impressions by those who try to sell you something. I am, of course, always hopeful that someone will send me a check for a pile of money to start my next idea as a business, all at once, the day after I tell them about it... And I am still waiting...
I feel as if waiting for good fortune to fall on me is a poor plan. So I proceed regardless, recognizing the reality of things as I see them.
I write as a sample of one. My experiences with a sample of a few dozen startups over the last few years and their fund raising may not reflect the situation where you are. But I suspect they do. I have asked more and more people to tell me I am wrong based on their own personal experience, and once they stop bragging and answer my actual questions, they generally fess up to it.
The overnight success usually takes years to happen. The overnight funding is the same way. At some point, you get to where more people recognize the opportunity is really going forward and they have a chance to get on or lose the opportunity. The snowball effect takes over and they fill the round. It usually happens overnight - after about 9 months of effort...
Copyright(c) Fred Cohen, 2017 - All Rights Reserved