Capital Raising Worst Practices: Part 2 - Shooting From the Hip
In part one of our series, we talked about Conducting the Casual Capital Raise. Since we can’t just cruise our way into a pile of money, it’s time for us to go a bit deeper.
This post is all about how to put processes in place so you avoid shooting from the hip and enable yourself to manage the whole, potentially messy, capital raise endeavor in an organized fashion.
It’s simply too complex of an undertaking not to have a foundational system in place to shepherd all parties along.
For you and your team, your process will keep you organized, accountable, and on the front foot, able to be highly proactive as you’re interacting with multiple counterparties.
For parties you’re engaging with, your process serves to communicate deliverables and timelines for them to adhere to as well as to convey the “state of the state” for your raise.
If these parties can’t deliver within the construct of your process, they risk falling out of it and missing out on a great opportunity.
Here’s the 8 Stage Process I execute when I’m raising capital.
What to Do: Conduct research and build your list.
How: Study active investors in your product/industry categories. Study the individuals, the themes, the portfolios.
Identify common connections. Find owned content they’ve written that you can reference, and outline what resonated with you (good ego stroke).
Create a spreadsheet or use a CRM to track and make notes to give you context when you outreach.
Here’s a simple spreadsheet that’s worked well for me along the way.
What to Do: Get into inboxes with context.
How: This is when you put the research you’ve done to work. You should have some intelligence to deploy at this point so you’re not just spraying and praying with weak outreach.
This is hopefully obvious, but I’ll say it anyway. We are NOT talking about performing a mail merge on a list here. This is targeted, personalized outbound. Take it seriously and write well.
Seek warm intros from common connections that are actually legit (i.e., you actually know the potential intro’er and they actually have a relationship with your target).
Have a forwardable email ready for your warm intro’er to send—make it easy for them to help you.
I suggest creating a template in Gmail that you can easily spin up and tailor. Then, use the shit out of it! And improve it as you go.
See what I mean? One direct outbound, one referral. Easy enough. Just do it.
If you can’t get a warm intro, so be it. Go in cold and don’t be afraid or apologetic about doing so! You’re presenting an opportunity they may not otherwise have seen.
BUT, come correct. Be clear, concise, and contextual. Write well. Help them take the bait.
What to Do: Pursue and Persist!
How: This is where you start getting dogged with it. Follow-up, follow-up, follow-up again. You need to get some form of next interaction going.
Get a reply to your email. Get them some more information they haven’t yet seen. Get a meeting of some kind set in motion. Get them to change their mind and take a call. Get told to f&ck off 🙂
This is go time. Let everyone know it. You cannot persist in this state in perpetuity.
Don’t get stuck. Don’t get down on yourself. You will likely hear, “No” many times. That’s not a bad thing. It’s all about driving each party to an outcome, whatever shape that takes. The important thing is it takes a shape.
Here’s where you want to be: you have a list of 15 that you’re shepherding to a term sheet on a timeline.
4. Gather Results
What to Do: Turn anything yellow to green or red (see below).
How: Force some form of a decision to reduce those in a state of “ether”. This could be getting confirmation that they are writing a term sheet, presenting to their partners or Investment Committee, or something of that nature that is tangible and gives you something to hold them accountable to with timing.
If they are not delivering, let them know you are marking them as a “No” until they do so. Don’t be scared to let them know. I actually keep an “ether” stage in my pipeline (or a “pending” stage in my capital formation spreadsheet) and conditional format it as a yellow cell. I want to have as few yellow cells as possible, so I’m going to hound my “ethers” for a go/no go, getting more aggressive with them as time passes.
5. Select Partner(s)
What to Do: Pick a horse
How: Hopefully, you’ve generated some results, so now it’s time to pick your horses(s). Who has delivered you something? How compelling is it? Does it align with what they’ve indicated they would deliver or does it seem way off base? Who’s been best to engage with? All important considerations for your selection.
Once you select and sign a term sheet, you’ll generally enter an exclusivity period, which in effect turns off your capital raise, so choose wisely.
6. Dominate Diligence
What to Do: Drop the hammer on them. Make their work easy and enjoyable. Build immense trust and excitement.
How: You are entering a world of pain that is due diligence. Hopefully not, but this is where you can really shine.
You must manage this stage of the process aggressively. Don’t let it drag.
Even if you’ve never been through it before, act like it! This is where your preparation over the previous months (or years) propels you through what can feel like a never-ending slog.
Overdeliver here and drive their diligence process for them! Be extremely responsive. Be realistic with your delivery timelines. Push back on requests that feel unnecessary or duplicative. Point them to the fact that you have answered that specific question in three different ways across five supporting files.
You’re likely not the only deal they are diligent in parallel, so shoot to be the best.
What to Do: Work with your counsel to negotiate the final documentation and satisfy all closing requirements.
How: You’ve made it through diligence, now you must paper the deal. It’s important to get what you want out of the docs. It’s also important not to over-optimize and nitpick every term in an agreement.
Hone in on the things that really matter, be clear about why they matter, put forth suggestions, and achieve the best you can.
Deals can still die in docs. It’s painful for both parties who have invested time and genuinely would like to get the deal done, so don’t become pennywise and pound foolish. Don’t get acrimonious. Take the long view of the partnership to come.
What to Do: Sign the docs, get them your wiring instructions, and refresh your browser until it hits.
How: That’s really all there is to it 🙂
There you have it. This is execution at its finest. There are many reasons you may not succeed in a capital raise, but it should never be because you ran a shoddy process.
Questions about what this process can do for your company? Bigfoot Capital is here to help. Let’s talk.
Stay tuned for Part 3 of our series when we’ll discuss going after the wrong audience and time wasted “dating” investors.