Institutional Capital Raise Mistake #3 - Not Budgeting Enough Time for Success

Obtaining growth-stage investment capital has always been competitive. However, Growth-Stage companies currently face the most challenging capital raise environment in over a decade.

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.

Unfortunately, many growth-stage companies lack expertise in raising capital and subsequently approach investor categories as if they are all the same. In doing so, they miss the opportunity to connect effectively with the specific needs of each individual investor, often leading to a lack of success in the capital raise.

While each capital raise is unique to that specific company and situation, there are many similarities. Regardless of the product or industry, there are several major missteps growth-stage entrepreneurs commonly make. In most cases, these missteps lead 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.

In this challenging funding market, it is more vital than ever to optimize the engagement with every investor you meet. In order to help you with this goal, we have listed a common capital raise misstep that we see. Fortunately, this mistake is easily avoided with the proper strategy and preparation.

The Third Biggest Capital Raise Mistake – Running out of time and money. Not budgeting the necessary time, talent, and resources to complete a successful funding round.

Securing sufficient funding capital for the operations of your business is a vital function. It is just as vital as other core elements of your business such as talent, technology, product, marketing, etc. Therefore, don’t make the mistake of treating the capital raise process as an afterthought. Treat it with the respect that it deserves. Allocate the necessary resources to the time, talent, and assistance that you are going to need to successfully complete a funding round.

Raising capital takes time. In most cases, it takes longer than you hope or expected. Regardless of the type of investor that you are targeting, most will move much slower than you prefer. In our experience, too many management teams have unrealistic expectations for the amount of time and effort needed to successfully complete a capital raise.

Time and time again we meet with management teams that expect to successfully close a round of capital in three to six months. The unfortunate truth is that most capital raise campaigns actually take between twelve and eighteen months to successfully complete. This is a fairly large expectations gap – one that often leads to trouble.

We frequently experience situations in which growth-stage companies run out of time and resources because they planned for a short raise timeframe and had to make suboptimal choices when that deadline was not reached.

In addition to inadequate funding, many growth-stage companies also fail to empathize with the effort and risk inherent in the diligence process for their potential investors. Most management teams fail to understand that institutional investors dislike the due diligence process as well.

Performing thorough and comprehensive diligence requires a lot of time, resources, and talent on the part of your potential institutional investor as well. By putting capital to work in your company, investors are putting their reputation and capital on the line for you. There is quite a bit of risk involved with their decision.

The most successful growth-stage companies understand and respect the gravity of the process that their potential investment partners are going through. With that in mind, building trust throughout the process is vital to success. One of the quickest ways to build trust with institutional investors is to demonstrate strong corporate governance, infrastructure, and transparency.

Many growth-stage management teams often overlook governance, infrastructure, and transparency issues. However, when pitching institutional investors, these elements can actually be the most important. Ensure that your company has the proper infrastructure (people, processes, and technology) in place ahead of time to help institutional investors through the diligence process. Institutional investors want to partner with a strong, well-capitalized, and professionally governed management team.

Give the capital raise due diligence process the respect and attention that it deserves. Budget the appropriate time and resources for the process. Pay proper attention to infrastructure, governance, and transparency issues.

Do this correctly, and you will not only distinguish yourselves from the investment competition, but you will also most likely shorten the diligence period – saving you additional time and money.

Here are a few key areas to focus on to avoid this common misstep:

Create the budget necessary to actively run a capital raise with the expectation that it will require at least twelve to eighteen months. Budget the necessary time, talent, and materials. If outside professional assistance is needed – budget for that as well.
Understand the due diligence process and necessary timeline for each engaged investor that you work with. Start an open dialogue with each potential investor. Doing so can help you more quickly discover their highest priority goals, their concerns, and a realistic timeline.
Take the time to build the correct corporate infrastructure. Professional investment partners always seek management teams that have created strong corporate governance.

In this environment, getting help with a capital raise is a necessity, not a luxury.

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 & 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.

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 completely understand the challenges that you currently face.

The power of our experience is that we have worked on both sides of the operator/investor divide. We've pitched, been pitched to, have asked for capital, and have invested capital. As such, we have invested alongside all of these investor types. We understand their needs, how they think, and what they are looking for in an investment. In other words, we have sat at both sides of the investment table.

In this challenging environment, your company needs to optimize every single investment connection that you make. Presenting the right message, satisfying the right need, to the right investor target is now more vital than ever. An effective strategy, process, and team will be the difference between success and failure.

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, give us a call and we can be your partner through this challenging market.

Your NameJuly 1, 2024