The ABC of fundraising: A Always B be C Fundraising
Andreas Jacobi
Partner at HSCie - Global M&A | Sell-Side | Buy-Side | Capital Raise | Angel-Investor
I have seen many founders struggle with the challenge of raising capital for their ventures. One of the common advice that they receive is to follow the rules of "after the fundraise is before the fundraise" and "always be fundraising". These rules imply that founders should always be in touch with potential investors, pitch their vision and traction, and build relationships that can lead to future funding opportunities. The rationale behind these rules is that fundraising is a competitive and uncertain process, and that founders need to be proactive and prepared to seize any chance to secure funding for their startups.
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But are these rules always beneficial for the company's success? In this article, I will explore the pros and cons of following these rules, and suggest an alternative approach that can help founders achieve better results for their businesses and their fundraising efforts.
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The Pros of Always Be Fundraising
?The main advantage of always be fundraising is that it can increase the chances of finding the right investors at the right time. By constantly networking and pitching, founders can expand their pool of potential investors, get feedback on their ideas and progress, and create a sense of urgency and demand for their startups. This can help them attract more attention, interest, and offers from investors, and give them more options and leverage when negotiating terms and valuations.
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Another benefit of always be fundraising is that it can help founders stay on top of the market trends and opportunities. By talking to different investors, founders can gain insights into what the investors are looking for, what the competitors are doing, and what the customers are demanding. This can help them adjust their strategy, product, and messaging accordingly, and stay ahead of the curve in their industry.
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The Cons of Always Be Fundraising
?However, always be fundraising also has a significant downside: it can distract founders from their core business. Fundraising is a time-consuming and exhausting process that requires a lot of preparation, research, communication, and follow-up. It can take away a lot of time and energy from the founders that could otherwise be spent on developing their product, acquiring customers, hiring talent, and managing operations. As one founder put it, "fundraising is a full-time job on its own".
?This can have a negative impact on the performance and growth of the startup. By focusing too much on fundraising rather than on the core business, founders can lose sight of their vision, mission, and value proposition. They can also miss out on important feedback from their customers, employees, and partners. They can also fall behind on their product development, innovation, and differentiation. This can result in losing market share, customer satisfaction, and competitive advantage.
?Moreover, by neglecting their core business, founders can also hurt their chances of getting funding in the first place. Investors are not only interested in the idea and vision of the startup, but also in its traction and execution. They want to see evidence that the startup has a viable product-market fit, a scalable business model, a strong team, and a loyal customer base. They want to see that the startup is growing fast, generating revenue, and solving a real problem. If the founders fail to demonstrate these qualities because they are too busy fundraising, they can lose credibility and trust with the investors, and reduce their chances of getting funded or getting good terms.
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The Alternative Approach: Hire a Professional
?So, what is the solution? How can founders balance between fundraising and running their business? One possible answer is to hire a professional who can handle the fundraising process for them. A professional fundraiser is someone who has experience and expertise in raising capital for startups. They can help founders with tasks such as:
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By hiring a professional fundraiser, founders can delegate most of the fundraising work to someone who knows how to do it effectively and efficiently with an existing wide network of investors. This can free up their time and energy to focus on their core business activities. They can also benefit from the professional fundraiser's network, knowledge, skills, and reputation in the fundraising space.
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Hiring a professional fundraiser also improves the outcomes of the fundraising process. A professional fundraiser help founders find the best fit investors for their startups based on their industry, stage, goals, and values. They also help them craft compelling stories that highlight their strengths and achievements. And negotiate better terms and valuations by leveraging their relationships with investors and understanding their expectations and preferences.
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By hiring a professional fundraiser, founders can achieve better results for both their businesses and their fundraising efforts. They can grow faster, generate more revenue, solve more problems, create more value, attract more customers, hire more talent, build more partnerships, building lasting value for their venture - all while securing more funding at better valuations and terms.
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Conclusion
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The rules of "after the fundraise is before the fundraise" and "always be fundraising" are good advice, yet one must never forget the opportunity cost associated with it that can harm the company's success. Therefore, founders should not blindly follow these rules, but rather evaluate them critically and adapt them to their specific context and needs. A critical look at the founders and their time resources and strengths is crucial to allocate the time and expertise where it creates the most value.
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Hiring a professional fundraiser who can take care of the fundraising process for them is not cheap, however it allows founders to focus on their core business and do what they do best - build their startup. This creates better results for their business increasing value and fundability greatly increasing chances for funding and good terms and valuations, while having a professional fundraiser give critical advice on the core business and efficiently handling the fundraising process. Making it a worthwhile investment paying for itself with higher valuations and investor competition.