Only your vision and your product or service can truly convince an investor to close a deal. But having these tips in your back pocket won’t hurt.
I’ve written previously on how to successfully raise your seed round — specifically on finding investors, performing due diligence and using a proven email structure. However, there’s more to the process. Once you have this foundation set, you still need to convince an investor to write the check. You need to focus on using timing to your advantage. When I was fundraising, I noticed that time was the main driving force for closing deals effectively. Here, I’ll show the tricks I used to control timing in order to help you complete your fundraising process.
Once you’ve received verbal confirmation from your investor, it’s important to get them to sign the note purchase agreement. Provide a deadline in order to create an immediate action step. By showing urgency you will be able to filter out investors who are not completely serious. While fundraising, I created strict deadlines for my investors. This way, I was able to gauge if an investor was in or out. Time is valuable, and you want to make sure that it’s not wasted. You should expedite the process as quickly as possible. Let your investor know that you have to focus on your company, that you have interest from other investors and that you have a hard timeline. Even though your round will have a final closing date, you can set several closings. I hit all of my fundraising goals sooner than expected, because I set up closing dates to get everyone to sign off. You will want to have your main closings at the same time to lower your legal fees; however, you can use your law firm’s expertise to your advantage.
Raise in the Fall or Spring
There are two main periods of the year that are considered prime time for raising capital. This includes from Labor Day to the end of November, and from February to the end of April. Many super angels may be part of a syndicate, a venture capital firm or an angel group. For them to complete their investment, they will have to get sign-off from their board. You need to make sure that investors who are using a personal entity are not on vacation with their family or friends.
The summer is the most difficult time to raise your round, and I would recommend waiting for each investor to return to work mode. You should prepare your fundraising schedule to kick off right after Labor Day. Your goal should be to complete your full round in three months. Some deals may take up to six months based on your company; however, if you follow the rules above you should be able to close your round in three months or less.
Own Your Demeanor
When talking to investors, you must be confident and truly believe in yourself. While it’s all right to show humility and compassion, don’t reveal any weakness or vulnerability. You want to act knowledgeable and persistent while holding your ground to achieve the desired terms set by your lead. If you negotiate fairly with an investor while closing a deal, they will respect you much more individually.
For example, I had an investor demanding to change the valuation after it was already set by my lead. I told the investor that the terms were final, and that they had to make a decision based off the current term sheet. This is a key skill that you will use every day while running your company. You need to show it while presenting yourself as a competent and standout leader. Be honest and truthful with each investor. If you don’t know an answer, say, “I don’t know. I will ask my team and get you an answer.” The second you start lying about your knowledge, it shows that you are not competent in your proposition and it brings weakness in your ability to execute on your vision.
These steps will help you finish your fundraising process. But much like I did, reach out to your network and talk to other entrepreneurs about the process. These steps can act as a foundation, but you should complete your own process. Once you have finalized your own formula, it will become much more natural.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
Image Credit: CC by Henrik Sandklef.