Previously I have talked about meeting investors and how to not let them sway you from your vision. Now I think it’s worth talking about how to actually close your round. For this post I am going to assume you have a fundable company and good pitch and focus on the tactical aspects of closing your round.
A good fundraise should be tightly focused and highly orchestrated. There is nothing casual about this. If you fail to create a sense of momentum and urgency you will likely struggle to close your round. Once you kick off your fundraise, getting it closed out is your top priority. Do not start fundraising unless you can completely dedicate yourself to driving towards a close. Don’t be in the middle of building and launching a key product initiative or on boarding a critical customer. This is especially dangerous if you don’t like sales (that is what you are doing when you raise a round) because it’s easy to fall back to writing code or whatever else you are more comfortable doing. This can drag your round out and nothing smells worse to investors than a deal that has gone cold.
You will want to start scheduling meetings with prospective investors a couple weeks out so that you can try to keep your timing and pace tight. Remember, this is a synchronous process so you want to make sure that you have a big enough conversation funnel activated to get you where you need to go. For example, if you are trying to raise $1 million but are only talking to a couple investors that usually write $25,000 checks you don’t have a big enough funnel. You will also need to manage the pace of your conversations. It will likely take more than one conversation to close a person or firm who is writing a bigger check. Ideally you have several of these conversations in process at the same time. You don’t want to end up in a situation where you are three conversations in with one firm but just starting out with someone else. It can be hard to play catch up to drive the competitive dynamics and heat around the deal you are looking to create.
You might get a lot of “commitments” for money. I’ve been there. You meet an investor and they say they want in. All you need to do is find a lead or fill up the rest of your round or prove one more thing and they are good to go. These are almost worthless. My former board member, Allen Morgan, helped guide us through our fundraising processes and wrote a great post about this. Basically, until the wire hits your bank account don’t believe anything anyone says. Keep parallel processing across multiple conversations to make sure you are covered when some investor inevitably falls out of the deal.
Being reasonable in your pricing expectations will also make your round easier to close. When you try to over optimize it’s easy to end up wasting time and putting your whole deal at risk. I’ve found in almost every scenario it’s better to get the people you want in your deal and get back to work quickly than it is to drag things out to minimize your dilution. This isn’t about giving investors a discount. It’s about putting yourself in the best position possible for the ultimate victory of a successful company. Making your round easy to close is an important part of this.
Once you have some momentum in your round you should set a close date and begin driving everyone towards it. Be proactive in making sure everyone gets all the relevant legal documents and has time to review them. Reach out and let them know you are available to answer any questions. Ideally you have had enough conversations with different investors that your deal is at risk of being oversubscribed. You can now tell all the people who previously committed to investing that if they don’t send their wire in time you will close without them and they will miss their chance to invest. At this point your job is to stay close to everyone (investors, lawyers, etc) and drive the deal to completion.
It’s a great feeling when the wire hits. There is a good chance you will be emotionally and mentally exhausted at this point. Take a weekend off and come back on Monday and start thinking about how you get to your next round or major milestone.
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