The #1 Capital Raise Mistake - Total Lack of Planning
Save your company significant time and money – avoid the most common capital raise mistake.
Ask any growth stage entrepreneur, and they can tell you that raising capital from institutional investors is a competitive and challenging game. This is the case in practically any investment market environment. However, the challenge is particularly acute in today’s market.
While each capital raise is unique to that specific company and situation, there are many similarities. Regardless of the product or industry, there is one significant mistake growth-stage entrepreneurs commonly make over and over again. This mistake leads to wasted meetings, wasted effort, wasted time, and most importantly wasted money. In extreme cases, it can lead to a failed capital raise or depressed company valuation.
The mistake isn’t made out of laziness or lack of care. Usually, the root cause is fear and uncertainty on what to do and where to start. Fortunately, if you are aware of it ahead of time, this mistake is easily avoided.
The Biggest Capital Raise Mistake – Total lack of planning. Racing headlong into a capital raise without an effective strategy or process.
Here is the truth - most growth-stage Founders and CEOs lack deep experience with raising capital. Most of these entrepreneurs started a company because they were passionate about the product or solution that they were building. Raising capital is an afterthought at best, or a huge nuisance at worst.
A great majority of entrepreneurs (at all stages) simply do not fully understand how private equity, venture capital, and strategic investors differ from one another. Nor do they understand how these different kinds of investors are evaluating their opportunity. Unfortunately, this lack of experience often leads to a capital raise that is rushed, ad hoc, poorly planned, and unenthusiastically (or fearfully) pursued.
Not surprisingly, this unplanned rush into the capital markets most often leads to frustration and disappointing results.
Too many times we meet Founders and CEOs who firmly believe that successfully raising institutional capital is simply a matter of having an extensive rolodex or completely outsourcing the raise process to a partner who does. While it is understandable why that strategy is enticing, in most cases, it is a mistake that can waste significant time and money.
At the growth-stage, the truth is that you cannot outsource the entire capital raise process to a third party advisor or agent. It simply does not work. Investors want to engage with the Founder, the CEO, and the team. Investors will demand it. They do not want to engage with a third party agent.
The key to a successful growth-stage capital raise is not an extensive rolodex or an outsourced group with extensive ties to the capital world. The key to a successful raise is a strong executable PLAN. The plan needs to be systematic, programmatic, and disciplined. It must include the three core elements of success: a well thought out and disciplined process, correct investor positioning, and compelling business execution.
Here are a few key areas to focus on to avoid this common mistake:
Begin with the end in mind. Create the internal structure you need to run a complete capital raise process. Set achievable goals and work backwards to create the plan that will help you achieve those goals. Don’t rush blindly into a poorly planned process.
Based upon the goals and plan that you create, perform a current state and future needs assessment. Determine where gaps exist and how to fill them. You cannot outsource the entire capital raise. However, you CAN engage experts on significant elements of the process.
Discuss your strategy with professionals that have gone through the process before. However, stay engaged and do not outsource the entire process. Assemble your team. Assign roles and responsibilities. Commit to the goal as a team.
In this environment, getting help with a capital raise is a necessity, not a luxury.
At Bennu Partners, we have spent the last decade helping growth stage companies create more meaningful and effective engagement with private equity funds, venture capital funds, family offices, and strategic investors. We understand the needs of those investor communities, and understand the challenges that you currently face in effectively communicating to them.
As mentioned earlier, at the growth-stage, you cannot outsource the entire capital raise. It simply does not work. However, you absolutely CAN get help from professionals to optimize aspects of your company’s capital raise process.
Doing so can lead to more success, with less time, at an ultimately lower overall cost. You don’t have to do it alone. We call this the ‘Do it With Me’ business model, and we have found that this is the model that most often leads to success at the growth-stage. Investors want to meet with Founders and CEOs, but the process can be assisted by advisors and experienced professionals who can help with strategic refinements, pitch improvements, investment targeting and other optimizations that can make the process more efficient.
Avoid the mistakes listed above, and you will help differentiate your company in this noisy, turbulent, and crowded capital raise market. If you are looking for some guidance, tips, or day-to-day help, contact us and we can be your partner through this challenging market.
© Copyright February 2024. Marc Patterson. All Rights Reserved.