On average, it takes 4-6 months to complete a capital raise process. While each process is unique, they all follow the same steps, as outlined below:
Planning is the most critical step in a capital raise process. This is where you create your game plan. Don’t start talking to any investors until you know the basics of what it is you’re trying to accomplish with a capital raise.
Preparing for a capital raise is essential for three reasons: 1) Being more organized on the front end saves you time running around hunting down information while you’re in the thick of diligence; 2) It helps you to control the initial narrative of how your business is perceived in the market, and 3) You waste less time with the wrong investors.
The marketing stage of a capital raise process is where you contact prospective capital partners and manage the initial meetings and information requests. The culmination of marketing is a signed term sheet or letter of intent, which outline terms of the deal.
Diligence is where you choose a capital partner and move towards negotiating and finalizing the deal documents. At this stage, you will be providing a lot of information about your business to a prospective capital partner for them to get comfortable writing a check. The culmination of diligence is a closed transaction and money in your account.
Immediately after closing a deal, there is a lot of work to be done. You need to communicate with your team and other stakeholders in your business, put in new processes and start deploying the capital you just raised.
The Missing Step in Most Capital Raise Processes
Experienced entrepreneurs usually add an extra step between steps 1 and 2, which can help accelerate a capital raise process.
Savvy capital raisers let certain investors know about their upcoming plans to raise capital in advance of launching a full process. The ideal outcome of this strategy is a good, quality investor steps up to invest in your company; thereby eliminating the need to launch a full process.
Nearly all entrepreneurs can incorporate this tactic into their capital raise. Your pool of potential investors may be professional investors, or it could be high-net-worth individuals, customers, vendors, etc. Keep these preliminary conversations very high-level. Tell them that you’re planning to launch a capital raise, explain why, and ask if they are interested in participating when the time comes. If someone steps up and wants to move quick, great. If not, you at least have these contacts warm for when you do launch your process.
How can I shorten a capital raise process?
- Spend less time planning or preparing (not recommended)
- You already know the right capital partner(s). They already trust you, love your business, and it should take them less time to get up to speed and close a deal.
- You quickly identify the right capital partner(s) and they are excited about your business and willing to move fast to prevent someone else from getting it.
What could cause my process to take longer?
- Wasting time with the wrong investors who will never put money in your business
- If you do a poor job of communicating the merits of your business to investors
- If your business is struggling or not in the best shape
- If you can’t get information to capital partners in a reasonable time period
- If a meaningful change happens to your business while you’re talking with capital partners (major lost customer, etc.).
- If you get far down the path with an investor and they back out and you have to go back out to market.