The “right” time for investment is different for every business, but here’s how you can determine whether yours is ready
One of the questions that comes up repeatedly when I’m working with women entrepreneurs is “When is the right time to fundraise?” Because fundraising is not one-size-fits-all, the answer will be different for every company, but there are some key considerations and decisions to make before you go get on your fundraising dance shoes (see my earlier blog, Learning the Fundraising Dance). The capital you need to grow your business will not come walking through your door. And I promise to make it easier than you ever imagined to figure out how to get the capital you need to grow your business.
Top 8 Indicators You are Ready to Fundraise:
1. You have passion about your product/service and company and are deeply committed to growing your business, no matter what it takes.
2. You have a product or working prototype (you are past the idea stage).
3. You’ve identified a problem and believe you have the best solution to solve it.
4. You have a clearly thought out business plan and early evidence of obtaining traction toward the plan (revenues, subscribers, etc).
5. You have enough of a team in place that you can spend 25-50% of your time fundraising for a few weeks or months in order to find your investors.
6. You know exactly what you would do with the funds and how it would help your business get to higher revenues.
7. You have a large addressable market; in other words, there are a lot of potential customers and you have access to them
8. You have a finance person (part time or full time) or someone who can quickly turn around projections and other financial spreadsheets and help you create a presentation for your prospective investors (or you know how to do this yourself).
Meet at least 5 of the 8? Great, let’s get you out onto the dance floor of fundraising!
Venture capital is usually not the first dance class you should sign up for
Whenever the topic of raising funds comes up in the media, venture capital often steals the spotlight. But venture capitalists only fund about 1 in every 1000 businesses and women still receive just 7% of VC funding, so this is not a great place to start unless you have a tech company or have gotten very significant traction already. VCs have requirements for funding that leave out a lot great companies (to name just a few, significant revenues around $1M or one million subscribers and companies they believe will give them a 10x return in 5-7 years). It’s true that more VCs are investing “seed capital” in the neighborhood of $500k in order to get a stake earlier in promising businesses, but be careful of low valuations that will have you giving up too much of your company too early. Skip to the part of this blog about Angels for a better alternative.
Crowdfunding is great place to practice the steps
A popular source of capital that more and more women are using is online crowdfunding. There are two types to know about – rewards and equity. In “rewards-based” you are sending people who give to your campaign a product or service and they do not own any of your company. In “equity”crowdfunding they are buying stock in your company. Keep in mind that if raising Venture Capital is at the difficulty level of an advanced Tango, crowd funding is more of a Salsa, where you can look pretty good moving your hips right and knowing just a few basic steps. When reviewing the pros and cons of crowdfunding, keep in mind that you can run a crowd-funding campaign as a kind of practice run in gearing up for raising money from angels or even at the same time. Here is a great article on crowd-funding by my friend Geri Stengel.
• Forces you to get your pitch together and make a video you could use for other purposes too (i.e. to help drive higher conversions on your web site)
• Gives you a chance to “practice” selling your idea and your company, good skills for other types of fundraising too
• May get you on the radar of your future angel investors
• If the campaign goes well, it gives you a “win” to tell angels or VCs when pitching to them
• Usually a one-time investment (few crowd-funding investors write additional checks)
• Often lower amounts are raised (average campaigns are $20k-$80k)
• Fees are involved and some sites only let you keep funds raised if you meet your goal
Angel investors are seeking dance partners!
A great opportunity for women seeking funding is connecting with angels, who are increasingly women themselves. Angel investors fund about 1 in 100 of the companies they consider, so your chances of getting the check are much higher than if pitching to a VC (1 in 1,000). Angel investors also offer some key benefits over other types of capital. Here’s a breakdown:
• The rise of women angels: There are more women angels than ever before—about one quarter of the 300,000 angels in the US are women —and the number continues to rise. There is a huge transfer of wealth into women’s hands happening right now thanks to women who are retiring after successful careers and inheriting wealth from partners and spouses. Women investors have been shown to be twice as likely to invest in women entrepreneurs.
• Re-investment possibilities: Angels are often able to write additional checks in subsequent fundraising rounds for your company, and can offer invaluable introductions to Angels and other investors, including VCs if you decide to raise venture funds later on.
• Ambassadors: Because angels have equity in your business, they have a stake in your success. If you choose your angels well, they become spokespeople and can make valuable introductions within their networks.
Fundraising will take you away from operations, so be prepared
It’s important to note that although having a trusted teammate who can assist you in preparing all the financial information and presentations you will need is truly invaluable, at this stage you don’t need to worry if you don’t have a big staff. Just keep in mind that fundraising is a numbers game so you will need to kiss a lot of frogs and that means you have to have a plan for how your business will run while you are out looking for your investors.
For more information on how to get the funding you need, take some time to review all the resources I have here on my website and get a copy of my book, Million Dollar Women—it’s chock full of valuable tips, case studies and guidance.
Remember, you can turn your moxie into money!