We have been very busy over the past weeks trying to help close follow-on financing for some of our companies. All in all they seem to be have pretty successful and hopefully we will be able to make some announcements soon.
We have often had the debate about how much time is needed to raise your first follow-on round. The average time quoted is between 3 and 4 months – we have seen a range of 30 days to 7 months.
30 days was based pretty much on doing an internal round and letting regular co-investors into the deal – this is the only way it’s going to be that quick.
Those raises that have taken 5 months or longer are probably because of one of two reasons:
A) The business had not achieved it’s significant milestones (showed uptake / traction) in the time frame it expected.
B) The market was moving very quickly and the business hadn’t absorbed and reacted to the changes quickly enough.
So how do you pull yourself out of the hole in these situations ?
In the case of A) failing to hit milestones you have two options:
One option requires you to explain the reasoning behind the failure to hit anticipated milestones, explain how you have adjusted things to achieve the milestones and raise a small bridge round to give you the time to hit the (revised) milestone.
The second option requires you to redefine your milestone retrospectively – showing that you had achieved a milestone (but not the original one) with the money you were given and that you are now raising a round to enable you to prove uptake / traction.
My recommendation is to choose the option that is closest to the truth. Sometimes (option 1) your lack of experience / good advice means that you just don’t execute well enough – in this case you need to show investors the extent of learning your experience has provided and hope that they still have faith in you. Sometimes (option 2) the milestone you originally set becomes irrelevant and hitting another milestone is genuinely more important.
In the case of B) not evolving your business quickly enough – this nearly always comes down to either a failure to execute (see above) or more often an unwillingness to listen to the advice of others.
One of the hardest things to do as an entrepreneur is to be able to have your head down focused on execution but at the same time be aware of everything that is happening around you. Really listening to external voices (advisors, mentors, investors) is probably the best way to keep a balanced view of where your offering sits in the overall eco-system. If everyone is telling you that the market is changing, then you need to considering changing too.
In some cases this just means acknowledging the shift in the market as part of your pitch and highlighting how these shifts might affect your business. In other cases it may mean that the product (or product development roadmap) may need to be changed to take account of the market shifts.
In either case you need to show new investors that you have the ability to evolve your business quickly in the future and show to current investors that you are now more open and willing to take input and advice – and hope that they still have faith in you.
Work hard to maintain the faith of your existing investors – because without that, it’s going to be much hard to raise follow-on financing if (when) something (inevitably) doesn’t go to plan.
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