Friday, 24 April 2009
How long does it take to raise VC money?
I enjoy chatting with other start up guys about their ideas and sharing my experience of the early stages of starting a new company. One of the questions that always comes up is "how long does it take to raise VC funding?"
In my experience, guys who haven't been through it before always think it will be quicker than it actually is. So, I will tell you how long and how much effort it takes to raise VC money.
It takes 9 months from start to finish. 9 months of focus, energy, commitment, pitching and negotiating. You will have perhaps a hundred conversations.
Most of the conversations will happen in the first 3 months. You hit the phones. Hit the email. Get out there. Pitch, pitch, pitch. You have to figure out quickly whether the VC you are talking to has any money or not. You would think that they might tell you if they don't actually have any cash to invest, but for some reason VCs seem to find it very difficult to say that they are skint.
The next 3 months are all about negotiating. You have got down to the handful of investors who are actually interested, a combination of your existing investors (if you have any) and new ones. You haggle, adjust, talk about pre-money valuations, liquidity preferences, management incentives as you edge towards a deal that everyone will accept. Then it falls apart and you start all over again. As you do this, the economy is changing around you and the VC industry collectively changes its mind. You do this three or four times until you get the actual deal agreed.
You're done. You're there. Congratulations. Break out the champagne! You have closed the deal. Haven't you? No, you think you have, but you haven't. You are just entering stage 3 - "Legals".
The final 3 months are a lengthy process of their lawyers talking to your lawyers. Your lawyers talking to you. You talking to yourself. And so it goes on. For weeks and weeks. Until the documents are complete. Then you send them out for signature and start chasing. Chase, chase, chase. Keep chasing until its all signed because if the markets crash, if the mood changes, if the VCs see someone new and sexier to chase after, then they will be off and you will be left standing there. FINALLY you get all the signatures back and the cash is transferred.
Only at that point can you truely say that your funding round is finished. When you look at your company's bank account and it has risen by several million, then and only then can you say that you have closed your funding round.
And on 21st April, Garlik's bank balance increased, the bank manager burst spontaneously into song and we cracked open a bottle of bubbly.
Now, back to the real business of building a successful, innovative technology business. As an early stage entrepreneur fund raising is something that I have to do and I'm not bad at it, but I really don't enjoy it. But building the business - that's the fun stuff.