Why is Fundraising So Hard? (Part 1)

cashAre you Fundraising? Have you considered what you would do if your fundraising was not successful? 

As over 95% of startups fail in their fundraising attempts, surely this is a key question to consider before you consider stepping out.

So, you feel that you have a good deal to take to investors. You’ve spruced up your pitch deck and seemingly crafted a half decent executive summary and business plan. However, after pitching to investors for 6 months, the best bites you have received have been minor questions from a couple of supposed investors, who were just really tyre kickers and consultants pretending to be investors who were looking for fee based work. No one has seemed remotely determined to enter into a deal conversation, let alone make you an offer. This has invariably led you to ask questions; “is it me, is my pitching/presenting not good enough, am I saying something wrong, do they not believe in the opportunity, the space, the team, the product,” etc and of course the list goes on and on. Perhaps you’ve been fortunate to even get a partial offer but unless its a significant majority of the amount originally asked for (say at least 60%), you’ve still probably failed and won’t be able to proceed, even with a partial raise. When it gets to 6 months with no firm full investment interest, you need to be taking a long hard stare in the mirror. As Sir Alex Ferguson infamously said, “It’s squeaky bum time.”


One of the main reasons that I believe makes fundraising hard for most is the lack of time founders spend ‘stress-testing’ their investment proposition / deal. What do I mean stress-testing? Well, just running it past one or two people who know what they are doing and who might have some spare time to spread a critical eye over your deal before you take it out. Be prepared though if they suggest some changes that are not quick to implement, such as, get a bit more traction or complete development before you go asking for development – these things can take time. The app D RISK IT (www.drisk.it) should help with stress-testing somewhat when it is released in September.

Two reasons why stress-testing doesn’t happen …. (i) Time. It can take around 6 months. There is a misguided belief that you just ‘write up’ your deal and take it out on the road. Also, (ii) Money. There’s an unhelpful aversion to paying for help. I know most startups have little spare money to help them hunt bigger money but focusing solely on a ‘free’ only strategy is not a great way to advance in business. Free is ok when it’s digital but it’s human equivalent (i.e. fee) is not based on the revenue models that the digital freemium model is. Just as software-as-a-service has a fee ticket association, why shouldn’t consultancy, development or fundraising-as-a-service? Another reason that fundraising is hard is that ‘success fee’ only professionals would rather minimise their risk by working on larger deals that are at a later stage of development, preferably post-revenue. So they rarely accept a request to fundraise from a revenue startup unless they are totally hot. Most think they are but they are not, so the source of help moves on to a bigger more juicy and importantly, ‘traction laden’ opportunity.

As a founder, if you’re not a fundraising expect, what should you do? Obviously, get some help. If you can get it free, then fine, otherwise pay for it. Someone, said to me a long time ago, “it costs money to get money.” Don’t make the mistake of think it’s just a case of writing up your executive summary then going knocking on the door of as many angels as you can find.

So, what to do? …. Well, there is some good news in Part 2, coming soon.

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6 Key Thoughts Along The Fundraising Journey (No6)

Lining Up Your Fundraising Approach (Access & Assumptions)

Don’t Treat Fundraising As Just An Access Issue.  Too many assumptions – Don’t assume, prepare! 

Image courtesy of freedigitalphotos.net

One of the hardest things about my work is pushing away companies that are looking for investment. Industry figures say that around 95% of businesses looking for investment fail in their fundraising attempts. In this series I’ve been looking at some of the reasons that I frequently see which ultimately lead to that fail. This 6-part series is not meant to be definitive but just a collection of some key thoughts and issues that get in the way for founders as they look to fundraise. This article is more pertinent to the way founders approach intermediaries or brokers (either solo fundraisers, angel networks or corporate finance firms) and picks up on the lack of understanding over the nuances of the angel investment landscape and how to get connected to investors. In essence, the big mistake is to just see introducers as just connectors (i.e “if you can  just make an introduction and give me the investor’s contact details, then I will do the rest”).

I see too many founders launching themselves into a dearth of fundraising activity in the hope that somewhere along the line they might connect with a likeminded investor or hit a lucky break. Being an occasional fundraiser/broker, I get many requests from company founders asking if I can introduce them to angel investors. Frequently, it goes something like this … “here’s my executive summary, let me know if you know anyone who might be interested in investing in this.” The problem is that there are several assumptions usually being made when someone says this to me and they broadly fall into two categories.

1)  Being ready for the deal:

Image courtesy of freedigitalphotos.net

Usually the biggest assumption is that they believe they are ready to speak to investors, overwhelmingly, they rarely are. They presume their deal proposition and the way they are communicating it is ready to put in front of investors; we call this being ‘investment ready.’ Perhaps they have managed to get a decent business plan/executive summary/pitch deck together and would no doubt feel at ease answering questions, such as, “what size or where is your addressable market?” or “when do you expect to reach break-even?” or “who do you expect to exit to and for how much?” However, there is a stage beyond this and very few get to it. It’s called ‘deal ready.’ Being deal ready means configuring the deal opportunity with the aim of de-risking it as much as possible to make it easier for an investor to say ‘yes.’

2)  Don’t treat fundraising as just an access issue: 

Image courtesy of freedigitalphotos.net

The second assumption and this is more usually the territory of first timers, is a lack of understanding of how to go about raising finance or how connections and introductions in the investment landscape are made. Founders often perceive getting investment is just a question of getting access … “if you can just give me the contact details (i.e. the access), I’ll give you a small slice of the deal for your trouble.” Just by the virtue of having a business plan or an investment opportunity, they feel they deserve the access that they are seeking. But a broker is also a gatekeeper and deal sifter. Before they will give that access, a review of the proposition is needed. If it’s not ripe for an introduction then it will be rejected.  Some entrepreneurs feel that the best strategy is to sign up as many brokers as possible but this is an approach that fraught with difficulty. ‘Spray and pray’ is not a realistic strategy and means that you end up with several brokers giving your deal a light touch. If they can place it easily they will but they won’t spend much time on it. I see many founders wandering around from angel to angel or angel network to angel network, hoping that eventually someone will believe in them and their propositions and say yes. If I just connected up all the businesses I could with investors without paying heed to whether the proposition was good enough, I would get a reputation for throwing any old deal out into the community; I would become a deal spammer.

Experienced people know that the investment community doesn’t work that way. Those that don’t, float around reaching out randomly asking “if you think you know anyone that might be a good match, could you introduce me to them?” It is very rare that I will engage in such a random approach and make that sort of casual connection. Ultimately, I and others like me (angel networks included) act as a sieve. If I don’t think their plan is good enough, why would I risk my reputation and send out sub-standard deal flow. There’s no way I would send out such business plans or summaries, let alone give out investor contact details. If the company and the deal is good enough, I have to get under the hood i) so that I can get to the stage where I think I can get behind the deal and ii) spend time helping the company to write a better executive summary. The summary is so important, it’s the foot in the door and it has to be close to perfect.

Accept, nay embrace, the sifting process so that you can come out the other end knowing where your weaknesses are. Then have a period to make changes according to the feedback you’ve been given, then you can start to fundraise. Here’s a good way to map out your fundraising campaign.


1. Documents > Put together both an executive summary and business plan. Obvious I know but you’d be surprised…..

2. Testers > Devise a list of three investors, or individuals in the landscape who you would not necessarily be looking to invest but who might be happy to give you feedback on your ‘investment deal.’  Ask them, “if you had the money, is there anything that would stop you investing in this proposition?”

3. Revise > Makes changes, possibly revise your strategy according to the feedback you’ve been given (these maybe quick changes that could just take weeks, or painfully slow ones that may take months). In essence you are have made changes to de-risk the opportunity for investors.

4. Embark > Now take your deal out; directly to investors if you can, or if you can’t get or don’t have direct access, then either i) put together a PPT and stand up and pitch at angel networks, or ii) find a broker or intermediary to represent you (the above mentioned solo fundraisers, angel networks or corporate finance firms). Beware though, to get ‘success fee only’ representation (i.e, no win, no fee) you and your deal have got to be not just good but really really good, especially in the current climate when even more companies are competing for the same investment that you are.

Please do leave a comment or question. Was this helpful, interesting or totally off the mark?

6 Key Thoughts Along The Fundraising Journey (No5)

Investor Contact – A One-Hit Pitch or Contact, Not an Unfolding Mystery

(Image Courtesy of FreeDigitalPhotos.Net)

“You get one shot so make sure it’s your best. Be prepared, be focused and be thorough. “

A frequent frustration when receiving incoming investment enquiries (either for the angel network I run, or for me as an independent fundraiser) is when the enquiry is drip-fed or trickles across the internet to me via a string of emails. The most common contact or access into angel finance tends to be via ‘pitching events.’ However, company founders also seek out investors directly where the first point of contact would be by email or a message via LinkedIn. The problem is that these digital introductions can be a very time consuming experience for those on the receiving end. You may not like it but you will be sifted and most likely moved on quite quickly (hopefully politely) so that the next business propositions can be reviewed. Remember, investors are looking for the best of the bunch, as soon as they see the investment opportunity, if it’s not in the top bracket, then they need to drop it quickly and move on.

Bad scenario #1:  An incoming email with either, i) a 30+ page business plan, or ii) a 15+ page powerpoint pitch deck. My reply, “Dear founder, would you mind sending me an executive summary or a short 1 or 2 page overview of your proposition. If you don’t have one, please see the attached example (N.B. I often send out an executive summary template). I’m afraid I wouldn’t get my work done if I had to read business plans all day long.” The normal review and sift process takes about 20-30 seconds (similar to a HR recruiter), therefore don’t make the reader work hard or reject you just for providing too much information. Yes it’s true, at this stage it is possible to provide too much information.

Bad Scenario #2:  Incoming email with an attachment but with an explanation that “the financials are not quite ready but I’ll email them over later in the week,” or, “I’m waiting for the result of a really big deal. I’ll keep you posted as things become clearer.” Don’t assume that the reader will remember you or your business proposition when you next email or call them. Many investors and investing groups can get anywhere between 10-30 investment propositions a week.

The best advice I often give out is in focusing companies on how to make a decent executive summary. This summary is so important because it’s your foot in the door. Be unfocused in this and it will lead the reader to suspect that if you can’t write a half decent 1 or 2 page executive summary, then it’s quite likely that the same focus and attention to detail is likely to be seen in every aspect of the business and its associated business plan. The problem with many summaries is that they max out on market aspects and also on product/service information but with very little on the investment proposition being offered to investors. They frequently fail to address the main required question: “how are you going to make money for an investor and what can you show to support this?”

Take a look at some of the summaries in the ‘Deal Activity’ section of this blog. I find this format seems to cover most of the urgent things you should communicate to an investor.

Your feedback and comments to this article, as ever, are always appreciated.

The Metrics of Fundraising from Business Angels

One way or another, right or wrong, there will probably be a cost to you to gain access to the angel investment you seek for your business – or as someone once said to me, “It costs money to get money.”

8875026_s3bUnfortunately many companies place the same expectations on gaining access to a discussion for angel capital as they do to access a bank loan

But it doesn’t work that way,  here’s why…

In many instances a middle layer is involved in sifting, introducing and shaping the deal flow that is presented to investors. This layer could be a freelance intermediary, a corporate finance organisation, an online marketplace, or an angel network that brings investors together to see investment pitches. Either way, people’s time is involved and obviously there has to be a cost to pay for that time, as well as the effort, management and draw upon resources.

There is the ‘free’ DIY fundraising route and this is to be very much commended for those who know what they are doing and have a well put together offering (and I’m not just talking about the business plan when I say ‘well put together offering’). Developing one’s own investor relationships is extremely worthwhile. However, be warned that this could be slow and time consuming and at worst, you could have spent a lot of time and effort just to find out that you were a long way off from being ‘investor ready’.

If fundraising is not an imminently mission critical activity and you have the ability to put occasional time aside, developing your own pool of investors is extremely worthwhile. It will help you gauge better how your proposition will be seen by the investment community, enabling you to make tweaks and changes along the way. Alternatively, the angel networks and pitching events generally do a good job at getting your ‘investment ready’ basics out of the way and your business proposition polished up nicely.

The Resource Drain

For some time now I have wanted to look at putting some sort of estimated cost value on the resource, time and effort that is involved in the campaign approach to fundraising. In particular, two fundraising campaign approaches:

1. the in-house DIY approach and

2.  the external hire approach

I then looked to see what data I could try and attach to the two.

For the DIY route I have been able to talk to executives within a biotech company that frequently has to undertake DIY fundraising to gain VC interest, as well as their bucks, to fund their latest projects. The chart below represents an approximated cost to the business in terms of time and money. I have adjusted the salary details downwards, to fall into line with a more likely salary position of an early stage company.

The details show the amount of time two individuals (the CFO @ 75% of his time and the CEO @ 50% of his time, both on £60k salaries) spend on fund-raising.

The chart shows an estimated in-house organisational cost of £37k to release 2 people to fundraise. I ran these equations past the company and they said the salaries for more established executives in their sector would be higher. The true financial cost for them, they said, would probably by closer to £80k each time they undertake fundraising.

So this is a typical costing of the resource time and effort. Now to look at the output from a typical fundraising campaign.

Depth of Campaign

Occasionally, I take on the work of a fundraising intermediary/broker on behalf of a business that I think stacks up well for investors. This means that I sift and select business proposals/companies before presenting them to investors. It should be said that no two campaigns are the same. Some can last 2 months some 8. Some can get investment from just contacting 10 investors; some can get funded after contacting over 100. I’ll leave you with some of the results that I pulled from a recent 6-month campaign.


Total of emails generated between all parties (i.e Inbox total for this campaign) = 504
Total of the 504 emails that were from and to the company team = 186
Total number of emails to investment sources (504 – 186) = 318


Total number of investment sources contact by email (initially) = 132
Total number of angel investors approached = 77
Total number of investing groups approached (VCs & Funds, etc) = 55
Average number of emails sent to each investor source (318 / 132) = 2.4


(Article written for iBusiness Angel)

Average number of phone calls to each investor = 4
Average time in minutes talking to each investor source (@ 2 minutes each call) = 8
Total time spent talking to all investors (8 mins x 132 investment sources) = 1056 mins = 17.6 hours
Time spent on dead/fruitless calls – no replies, secretaries & gatekeepers (6 calls average, 30 secs each x 132 investors) = 396 mins = 6.6 hours
Total number of meetings (including 2 scoping meetings with the company to start campaign) = 18

Look also at this article if you’d like to see what a sophisticated fundraising campaign looks like:  http://techcrunch.com/2013/08/10/how-we-closed-a-1-75-million-round-on-angellist-using-new-inbound-tools-and-techniques