When was the last time you spoke to an entrepreneur late at night, 6 months into their capital raise? There is a palpable sense of exhaustion, it’s the unique tone of intense passion dampened by market reality.
Having recently delved into the fundraising world with Rodeo Capital, I’ve heard the dreaded fundraising fatigue more often than I ever thought I would and it got me thinking: In a world where more capital is flowing into the CPG space than ever before, why does it still seem so damn hard to raise money?
The simple answer to that is that there are more entrepreneurs trying to start natural food, beverage, and consumer product companies than ever before and no matter how many funds are raised, there will always be greater demand than supply. I’ve spent the past 7 years or so trying to raise money for start ups in the space and though I think there are certain skills that can be learned to get the attention of investors, I have yet to construct a formula that expedites the process or makes it less arduous. Having now spent 2 years on the investing side, I’m slowly developing a theory that fundraising is an art, refined over time, and based on the tenants of timing, human psychology, and personal connection.
This might be a disheartening conclusion to some; especially those that have been force-fed terms like velocity, manufacturing margin, asset to debt ratio, market size, EBITDA (just kidding, this doesn’t even exist in CPG start ups), vision, blah blah blah. I’m not saying financials and quantitative metrics aren’t important, I’m saying that they are secondary to a much more human type of analysis. Though investors are generally quantitatively focused people, they are still people, and as such are driven by gut impulse and emotion. I’m fascinated by some of the deals that get funded very quickly and those that float and flounder in the dark deep sea of unfunded deal flow. So how do you prepare for a round of financing when the criteria for success are as intangible and amorphous as “timing, psychology, and connection?”
I hate simple lists that are presented as fact and ignore the inexorable complexities of real life...
I’m going to go ahead and make one in the hope that there are a few takeaways that might be helpful to entrepreneurs in the midst of fundraising:
In order to successfully raise money you need to have solid economics and be able to convince investors that there is a reasonable expectation of a healthy return on investment. I also believe in the power of effective communication, personal connection, and timing in the fundraising process. By acknowledging this very human component of investor psychology and adjusting your process, I think it could help you avoid that dreaded fundraising fatigue.