This video discusses the pre-seed fundraising round, highlighting its challenges and the importance of efficient capital raising to focus on business execution. It emphasizes that founders are constantly building their network and trust for future funding rounds.
What this video covers
Raising a pre-seed financing round is probably the trickiest. This is the first stage or the first financing cycle in which you are going to be raising money for your business for the very first time.
You don’t want to be investing time on raising money; you actually want to invest that time on optimizing for the execution of your business. At this point, you need to raise the small amount that you need in order to further polish the team, further polish the product and get those different metrics that are going to convince the more sophisticated people.
There are multiple rounds of funding. Founders are raising money 24/7. There are some times that they’re more active and other times that they are less active. But, at the end of the day, you are building your network and building the trust of that network all the time. Now, here’s the thing: you’re going to give yourself every time you raise money, 18-24 months of runway. That means that at least every 24 months, you need to make sure that there’s cash in the bank.
Obviously, at this stage, what you want to make sure of is if these people come in and invest in your business and perhaps are sitting on your board, you want to make sure that you’re keeping those people up to speed on everything that is happening with the business and getting them excited so that whenever the business needs money, they are actually the ones that give it to you and that you avoid having to get out there, which is going to take a significant amount of time and a significant amount of distraction from your business.
If we had to break down the timeline of the six months, the way that it would look like would be as follows.
The first step is going to be the initial introduction. Everything happens with you being introduced to that investor.
Then, there’s going to be an email with an executive summary or even a pitch deck that is going to be exchanged between you and the investor.
Next, there’s a first call that is scheduled between you and the investor to get to know each other.
If they like what you’re doing, there’s going to be a follow-up meeting in person.
After that follow-up meeting, then there will be back-and-forth with questions that they have, or they want the financial a model or whatever that is.
Then, there will be a follow-up meeting where they bring you to meet other investors within the firm.
If they like what you’re doing and perhaps they even take you to a partner’s meeting or something of that nature, then they may agree to give you a term sheet.
After that term sheet, then you will receive the due diligence process. If everything is hitting the marks, the offering documents are sent.
Having said that, when it comes to the timeline, you want to make sure that you’re making this a very airtight sales process. You want to make sure that you’re passing the investors that you’re speaking with from one end to the other and then having all of them at the same time and in the same place because that’s also going to boost your own confidence.
Again, it could take a few days; it could take months. Just be strategic. Don’t get desperate because if you get desperate, and if you don’t have full visibility into what this process and into what those different steps look like, you may be making some mistakes.
When it comes to the fundraising itself, there are going to be many, many different factors that are going to come into place, and that are going to influence how fast you’re able to get that run of money.
