How to Fundraise Efficiently When Start-Up Fundraising is Inherently Repetitive
This is a writing sample from Scripted writer Pauline Nguyen
It's time-consuming enough to go through the fundraising process with one bank or VC firm, let alone the many you'll need to work with to get all the funding you need. There is an easier way, however. In 2013, an estimated 5.7 million new businesses were created — many of them needed some sort of investment capital. Finding that capital, however, can often be difficult thanks to the numerous obstacles in the way of company founders, particularly the few firms that control venturecapital and many businesses that want a share. In addition, whether the funders are banks or venture capitalists, the fundraising process remains the same. Target potential funders, make the pitch, due diligence, negotiate, sign and repeat until the targeted funds are raised. While start-ups have fueled innovation, the funding process remains traditional and inefficient. The frustrating combination of daunting odds and endless rounds of fruitless fundraising can sap the time and energy of start-up founders. How can start-up founders stop the madness and find the financing that will carry them the last mile?
Evaluate the Return on Time
Thefirst step to stopping fruitless fundraising is to determine the return on time. While Facebookcan hire 33 investment banks to manage its IPO process, this is not an option for the average start-up. The traditional fundraising process is time-consuming because it requires start-ups to repeat the process for every potential investor. This means revising presentation pitches and desks, undergoing due diligence and negotiating agreements every time. If start-ups are finding they are spending more time on an investor than their business, then the return on time for this investor is too low to continue. In response to founder's fundraising fatigue, Correlation Ventures, an innovative venture capital company aiming to close the financing gap, has set the benchmark for a quick and knowledgeable investment decision. Leveraging a proprietary predictive analytics model and its extensive database of US VC-funded transactions, Correlation Ventures can return an investment decision within two weeks.
Take Back Control
The fundraising process can shift the power from start-ups to the investor through negotiations about control. Control is not only which party has 50 percent of the shares; control can also be negotiated through the number of board seats and shareholder rights. Control is also renegotiated with each new investor and fundraising round. When start-ups feel they are losing control of their businesses, it is time to seek out an investor who is focused on the financial gains and not control. Correlation Ventures has established a portfolio of 50 companies based on their ability to generate returns consistent with industry trends and the leadership ability of management — not on its own ability to control seats on the boards.
To Read More About Funding and Financing, See Below:
Microsoft's Strategy Shift and Its $40 Billion BuybackRisks and Benefits of Vesting Shares in an Early Start-Up6 Tips for Moving to a Cash-Only LifestylePhoto credit: Tax Credits, via Flickr. Powered by Scripted.com
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