Sunday, 10 June 2012

Winning a multi-innings game...

I've been spending some time with a friend who raised an Angel round late last year. Like all smart entrepreneurs, he raised sufficient funding to get him through the following 18 months. Now 6 months post funding, we sat down to take stock of the situation and plan for the future.

Its no secret that the fundraising process can be taxing and stressful - from living and breathing customers and revenue, you suddenly shunt from one conference room to another, gulping tea and coffee and answering every question humanly possible (and then more!). So when one finally gets funded, the natural thing to do is to celebrate, pack away the investor decks and dive right back into the business. But what about the next innings?

My friend had done similarly - having received funding, hundreds of things had popped up, from building out his team, upgrading the office, signing up partners, evolving the product and of course getting more customers. Net-net, while there had been a tremendous advancement in the company strategy in the last 6 month, to show for it we mostly had half-done projects and open job reqs. In fact the only thing complete was the move to a nicer office! Metrics were still flat from the point of funding, and maybe rightly so since only a few months had passed since the money actually came in the bank. But  didn't feel like we were building a company that would make investors hearts beat faster as we approached the next port of call - Series A.

Do some quick math - you raise funding for 18 months, these things always slip so maybe you have 16 months of headroom at the start line. Given projections are just projections, hitting your plan right down to the bottom line is hard, which might further reduce your time by 1-2 months. So in total, you might have raised funding for maybe just over a year! Since you want to raise funding when there still some cash left in the bank, entrepreneurs might need to be back on the funding bandwagon within 12 months of raising the last round. So if you don't plan for the next funding early enough, one fine day you realize that today is the day you need to start the fundraise process, to give you realistic odds of closing before the money runs out. At this point, the story that you craft for investors might be decided by how you can force fit what happened to work till then into a believable story, rather than how the metrics support your mid and long term vision.

So what is one to do? Fundraising can be more natural if you accept it for what it is - a multi-innings game where each round is judged by not just by where you are today, but also where you promised you would be in the last round. Here are a few pointers that I've picked up from the best in the business:
1. Be a Perpetual Networker - As an entrepreneur, your biggest job is to evangelize your startup and make sure its well-resourced. That includes hiring, revenue generation and fund raising. The latter often takes a backseat post-funding, and instead many entrepreneurs might only restart investor interaction right around the time they start the fundraise. Not recommended! Keep investors in the loop, especially those that you liked from previous interations. For a few hours each month you can keep them excited about the direction of the company, get some useful intros and hopefully make the next fundraise slightly less painful!  

2. Get the Metrics Right - Develop a trackable bottoms-up plan before you jump into execution. Today its possible to raise an angel round showing only high level projections. But seriously, saying that you'll hit $X million in revenues in 3 years or grow at 50% CAGR is meaningless! How will you know if the last month/week/day was productive?? Break down your success metrics into the smallest possible trackable units that can then be included in your personal dashboard.

3. Work backwards - This is the easiest one, and in my mind the most ignored. Think about it - today you already know that you'll run of money in X months, so you'll need to start raising funding in X-Y months. What story do you want to tell investors at that time? What would get them excited towards your venture? How would they look at your performance, both on an absolute and relative basis. You already know these facts today, why not factor them into your plan? I would also pay attention to feedback you received from investors who did not invest in you.

3. Build thought leadership - Let the market talk about you, and you won't need to pitch to anyone, investors will chase you!

4. Don't forget your exisitng investors - It's no secret that angels invest out of passion but have a full time job on the side. Though they might not proactively be spending enough time with you, keep them engaged! They are your best champions, which is why they participated in the first place. Adopting a clear engagement plan with them will help you leverage them efficiently, and provide you with great references for the next round.

3 comments:

  1. I believe working backward is the best technique to avoid disappointment.

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  2. Firstly congratulations. Raising funds for a venture is definitely a Herculean task. Most entrepreneurs find this process daunting. Despite a good plan and negotiating skills, the need to have a trustworthy source of finance is essential. I came across this interesting read that I am sharing here: http://smallbusinessindia.intuit.in/starting-business/ways-finance-start-up/. Do let me know what are your thoughts on it...

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  3. One technique i have developed at my start up SysCloudSoft is to have daily hot sales leads and try to convert them to paid that day esp the big ones. Have daily target that must be closed. Take care of daily targets and weekly, monthly,quarterly ones fall in place.
    Vijay

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