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:
- Hide Your Pain and Misery – The beginning of this article acknowledges the horrible, awful, soul-sucking process of raising money and the inevitable “depleted entrepreneur voice” but you need to find a way to hide this reality from prospective investors. Remember, this is a game of human psychology and investors want to FEEL an entrepreneur’s passion and there’s no greater buzz kill than an entrepreneur inserting a drawn out, lugubrious sigh in the middle of the elevator pitch. Look, we’re trying to live vicariously through you and if it sounds like you’ve had it, we’ve already moved on. Fickle but predictable beasts.
- Pimp That Presentation – This may seem arbitrary but the look and feel of your presentation is absolutely critical to capture investor attention and secure that first phone call. One would hope that we are more disciplined and discerning than a golden retriever on a walk who spots a squirrel….I’m just saying it doesn’t hurt if you dress that squirrel in a mini American Giant hoodie, a pair of fly drop crotches, and some Warbies (in whisky tortoise obviously). My point here is that it doesn’t take much to transform your presentation from a novice PowerPoint with clipart to a sophisticated presentation with smart iconography and graphics. The $300 is worth the spend, and if you don’t know a good graphic designer feel to reach out and I’d be happy to provide one.
- Pull Out The Napkin – Entrepreneurs should always be ready to have the “back of the napkin” conversation to show a firm understanding of the basic economics of the business. I don’t need to dig deep on an initial conversation but I do need to know that you’ve thought about how much money you are trying to raise and at what valuation (or terms of convertible), how long that money is going to last, current burn rate, general use of funds, and revenue target at next round.
- Build Advocates Everywhere – This might be an obvious one, but every good thing that has ever happened in my career was a result of a personal connection that I have made. With this in mind, I would propagate your brand, your mission, your intention to raise money, and yes, your powerpoint, to as many human beings as you can. Now you obviously have to adhere to SEC regs, meaning you can’t solicit investment to large groups of random strangers, but I would toe the line. The goal is to spread your enthusiasm and create as many advocates as you possibly can because this is a game of numbers. The most gratifying occurrence during a fundraise is to reach out to a new contact who lets you know that they’ve favorably heard about your brand, or even better, the deal from a mutual acquaintance.
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.