The pre-seed fundraising round, highlighting its challenges and the importance of efficient capital raising to focus on business execution.
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.
Hello, everyone. This is Alejandro Cremades, and today we’re going to be talking about how long it takes to raise capital for a startup. Understanding how long it takes to raise capital for a startup is one of the most difficult things. It’s all about timing, it’s all about getting all your ducks in a row, and one thing that entrepreneurs always ask themselves before they need to go out there. In today’s video, we’re going to be covering in detail what it really takes to raise the money, how long it takes, and then what are the processes? What are the different stages, the different phases, and then how to get it to a close? So, with that being said, let’s get into it. 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. Essentially, at this
point, you either don’t have a network, you don’t know how to do it, and it’s super tricky because time is of the essence. 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. Here, you’re probably going to be raising from friends and family or even from outside investors. If it’s taking you longer than six months, what you want to do is get back to work, try to see if you can push the metric or traction, and then go back to outside investors. But, again, you do not want to get caught into a process that is dragging, that is taking forever because, at the end of the day, your business
is going to suffer. 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. The beautiful thing about being at a Series A is now you’re past the seed and the pre-seed, and now you’re at a Series A where you’re locking in institutional investors. Those could be investors that have enough money to continue supporting your business throughout the course of time. 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. The fundraising process can be simplified or at least summarized in seven different steps, which are the following. Gather your data on achievements and forecasting your financial needs. Prepare your pitch deck. Start reaching out to potential investors with your ask. Attend investor meetings. Field timesheets and proposals. Survive the due diligence process. Execute final documents and get the money wired in. What we’re talking about here is, the median average is about six
months. Just to negotiate that agreement that you’re going to be getting between your lawyers and the lawyers of your investor, that could take up to a month. That means that you already have one month allocated to legal drafting or whatever that is. Here, what you need to account for is also the amount of time that it’s going to take between the time that you identify the investor that you want to target to the time that you get the introduction. Ideally, the best introductions come from founders or portfolio companies that have received an investment in the last 6 to 12 months. Those are the entrepreneurs that you want to ask to receive an introduction to their investor so that you can get into that circle of trust as soon as possible. Going back to timing, if you’re not doing an equity round, and you’re doing maybe like a convertible note, which is much easier and quicker, you can
even get the money in as simple as 90 days. But, again, that’s more on the lower end of the equation. 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. Then, the cash is wired. 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. Those factors are the following. The time of the year you’re raising money. The strength and depth of your data. The quality and effectiveness of your pitch deck. Your pitch presentation and performance in investor meetings. The strength of your relationship with investors. How complicated the due diligence is. How fast the lead investor in each round moves. How organized your accounting records are. Your location – it may be Silicon Valley, New York, or somewhere else. Market trends - availability of capital and appetite for startup investments What if it takes longer than six months? Obviously, here what you’re going to have
to do is you’re going to have to really stop it; you’re going to have to go back to the drawing board, and you’re going to need to reflect. If it’s taking longer than six months, there’s something fundamentally wrong either with your pitch, with your business, or with your team. You’re going to need to go back to the drawing board and understand what’s not working out, and that’s by figuring out some of the patterns of those concerns that the investors have shown during the time of meeting with them. Hopefully, you liked this video. If that was the case, make sure that you hit the like button below. Also, hit the subscribe button so that you don’t miss out on all the videos that we’re rolling out every week. Then also leave a comment so that I understand what you’re up to. We’d love to hear. Then, take a look at the fundraising training, which is the program where we help entrepreneurs
from A to Z with everything related to fundraising. There you’ll find live Q&As, templates, agreements, a community of entrepreneurs helping each other all over the world, and I think that you’ll find tremendous value in it. Thank you so much for watching.