The 1 Golden Tip That Vandrico Used To Ensure That They Would Successfully Close Their Seed Round When They Started Raising Money From Investors
Raising money from is probably going to be one of the biggest challenges you face as an entrepreneur. It pushes you to understand your business and industry inside-out, and will be one of the most complicated sales deal you’ll have to navigate.
Why is it so complicated? As you know, it’s hard enough trying to sell your product/service to one customer at the regular price, now you’re trying to:
- Pitch your company and the potential for profit to an investor to try to get a cheque for $50k-$500k (which is a few multiples of your regular price).
- Get 6-12 other investors aligned on the same terms/paperwork and at the same valuation (while they will all have their own opinions on terms and how much you should be valued at).
It should come as no surprise then that fundraising itself can be a full-time job and is highly distracting for founders.
If it takes most companies an average of 6-12 months to raise a seed round ($150k-$2mil), how then do you ensure that when you start to raise, you’ll definitely come out the other end successful and not have wasted those 6-12 months chasing investors while you could have instead doubled down and focused on finding more customers?
Alumni Gonzalo Tudela shares his biggest tip on ensuring that you successfully end up closing your round:
Aim for 150% in verbal commitments from investors before officially kicking off your round
As you start to raise capital and build relationships with investors, begin the conversation by seeking advice, you can hint that you plan on raising in the near future, but don’t jump to asking for a cheque too quickly it’ll make you sound desperate and investors rarely invest after the first meeting. It’s kind of like dating, you don’t ask to get married after the first date…
Once you build a strong enough relationship with an investor, you can start to gauge if they would be interested in investing in your upcoming round. It could be a direct ask, or it could be an informal soft solicitation through your investor update emails. If they say yes, that’s a good start, try to gauge how much they would be willing to invest.
When you officially kick off your round, the goal should be to aim to close in the next 2-3 months. Anything longer and it drags things out, causing investors to start to lose interest. The 2-3 month window is designed to keep things tight, generate urgency, and permit for due diligence and background checks.
You’ll want to aim to have 150% of the round committed – e.g. If you plan on raising $100k, aim for commitments of about $150k before kicking it off. This is important because some investors will fall off the table, we’ve seen all kinds of reasons, and I kid you not, some real examples include:
- Invested in another company.
- Decided to use the money to renovate their kitchen.
- Left for vacation without a word to any associates/friends, and was totally unreachable.
By having 150% committed, it ensures that you’ll stay on-track when you kick off the round and still end up closing instead of dragging it out and risk having the round fall apart. If you end up having more interest than necessary, it’s up to you if you want to oversubscribe on your round.
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