SEVEN Mission-Critical, MASSIVE Oversights That Can Kill ANY Chance for Angel Investor or Venture Capital Funding for Your Startup Company

Having helped thousands of startup companies during the past three decades, I have found that it is almost an axiom of life that startups have very limited cash resources – and, often, they very poorly prioritize spending that cash.

Unfortunately, way too many startups vaguely plan on raising angel investor capital without taking into account that it takes money to raise money.

This means that they usually, and wrongly, end up allocating virtually ALL of their limited cash resources to developing products and services, an MVP, marketing and advertising, staffing, arranging the deck chairs on their version of the Titanic, etc.

All of this is often done by inexperienced startup company CEOs without anticipating, and appropriately budgeting and timing, the expenditures that are almost always required to successfully raise the critically needed capital for their company.

Because these issues are all crucially important to almost every startup company, I’m going to list all Seven Oversights here. If this is all you have time for, you at least get the Executive Summary without the drill down – and that by itself might, just maybe, make all the difference to your success:

1. Massive Oversight #1: You Really Don’t Know How Long You Have Before Your Startup Company Runs Completely Out Of Money and Your "Runway of Existence" Is Gone.
2. Massive Oversight #2: Your Five-Year Financial Projections Are Wrong – Which Means Your Assumed Runway of Existence Is Wrong.
3. Massive Oversight #3: If You Screw Up This One Critical, Existential Step, Nothing Else About Your Startup Company Matters.
4. ?Massive Oversight #4: It Almost ALWAYS Takes Money To Raise Money.
5. Massive Oversight #5: ”I’ll Just Pay a Contingent, Success Fee to Pay Anybody To Find All My Investors – That Way, It Does Not Cost Me Anything Unless They Perform.” – Is Almost Always a MAJOR Violation of State and Federal Securities Laws With DIRE Consequences for You and Your Company.
6. Massive Oversight #6: It Typically Takes Three Months-Six Months (and Sometimes a Whole Lot Longer) to Raise Investor Capital AFTER You Are “Ready for Primetime” and AFTER You Are Ready to Actually Start a Full-Time Effort with the Right Resources and an Experienced Mentor To Guide You On The Treacherous Road from Your Current Point A To Your Post Funding Point B.
7. Massive Oversight #7: No Matter What, You Need to Make Raising Your Investor Capital PRIORITY #1 from Day One By Spending Time, Energy, Effort and Money on It from Day One.
8. Bonus Pop Quiz: Four Mission-Critical Key Questions On Your Fundraising That You Must Answer ASAP.

These eight sections are designed to be read, consumed and digested in ANY order of interest you have.

If you’re just interested in a partial drill down on a particular Oversight, just quickly scroll down and find the detailed information on the particular Oversight(s) you’re most interested in.

Hold onto your seats. 3. 2. 1.

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Massive Oversight #1: You Really Don’t Know How Long You Have Before Your Startup Company Runs Completely Out Of Money and Your "Runway of Existence" Is Gone.

A company’s “runway” measures how many days, weeks, or years you have before you’re out of cash to pay your bills, pay your people and keep your doors open without an infusion of capital.

Your monthly “burn rate” is basically how much your cash reserves in your bank accounts drop each month. Every month. Until it’s ALL burned up.

Nota Bene: I can't stress this strongly enough – your burn rate will vary, usually significantly, with each passing day.

You should update your calculated burn rate and runway at least monthly so you don't look up one day to be surprised that the money, and your startup company, have already gone up in smoke.

YOUR RUNWAY OF EXISTENCE (IN MONTHS) = CASH RESERVES/MONTHLY BURN RATE.

“But wait,” you say. “I’ve got my five-year financial projections that give me this answer – so I know my real runway.”

I hope that you’re right – but for most companies, they would be wrong. Dead wrong.

If you are pre-revenue – or not above breakeven with revenues, you’re burning your company’s cash reserve every day and your “runway of existence” is getting shorter with every single dollar you spend.

For most startup companies, you, as a startup company CEO, have to worry about this virtually every day and every week and every month. Nights, weekends, and holidays included.

(That's one of many reasons that almost every startup company CEO knows what the clock looks like at 3 AM EVERY morning!)

Now weave into this formula the very accurate and very old adage, “Everything takes longer and costs more” and, all of a sudden, your runway got really short really fast – maybe too short for any takeoff.

Ever.

Massive Oversight #2: Your Five Year Financial Projections Are Wrong – Which Means Your Assumed Runway of Existence Is Wrong.

Speaking of five-year financial projections…

Okay, I already see your eyes glazing over – but please pay attention for a few more paragraphs since your startup company’s success or failure might, just maybe, very well depend on what you’re getting ready to read.

Most entrepreneurs, by nature, are optimists – otherwise, they wouldn’t, so often literally, be willing to bet the farm to start their startup to achieve that optimistic vision they want to make a reality.

This almost always means that their five-year financial projections are optimistic – which means that the length of their runway, based on those five-year financial projections, may have little to do with ANY reality.

A lot of entrepreneurs know they are expected to have detailed five-year financial projections to both go with their almost never read 100-page business plan so they can show prospective investors the almost certain, rip-roaring “hockey stick” success of their “low-risk” opportunity.

Unfortunately, many entrepreneurs treat these financial projections like a term paper: they want to “Get ‘er done” as fast as possible and never worry about them again. More unfortunately, this attitude can be a very quick kiss of death for your startup company.

When you have reviewed a few thousand business plans and their financial projections like I have, you can come to the statistically sound conclusion that most startup companies very rarely have achievable and believable driving assumptions.

If the driving assumptions for your five-year financial projections are bogus, the formula-derived projections are at least equally bogus – and EVERY number that relates to cash flow and the cash balance is wrong.

Usually, dead wrong.

All of this means that whatever assumptions you have regarding the length of your Runway Of Existence are completely wrong – and it is really a Runway to Extinction.

(Details at DeviledDetails.com)

Massive Oversight #3: If You Screw Up This One Critical, Existential Step, Nothing Else about Your Startup Company Matters

Bottom line: As a startup company CEO, your #1 Priority is to make SURE your company can both survive AND thrive by ALWAYS having the necessary funding and capital reserves so that your Runway never gets too short or disappears.

If you are not successful with this critical, existential step, pretty much everything else about your startup company does not matter when the bank balance goes to zero – or even heads negatively.

If you screw up your #1 Priority, all of the time, energy, effort and money that were invested in your startup company end up being mostly wasted. If you screw up your #1 Priority, your employees will not have a job and won't be able to pay their own bills. If you screw up your #1 Priority, you will never be repaid for that equity loan you took out on your house, etc.

Well, you get the idea without me continuing to list all the consequential actions that will transpire with failure.

The whole purpose of this article is to make sure you, as the head honcho of your startup company, have an epiphany, gain clarity and take immediate, effective action to overcome every one of these Oversights – and that you properly prepare for a rip-roaringly successful fundraising.

Massive Oversight #4: It Almost ALWAYS Takes Money To Raise Money.

As important as all the other stuff that goes into starting a company, raising capital in a timely manner needs its own sales and marketing plan and Action Plan – and the financial and manpower resources to successfully accomplish every single line item on that Action Plan.

Raising capital can be a full-time job for the CEO when they already have a full-time job – and, as I said, it almost ALWAYS takes money to raise money.

If you're raising capital from investors, you usually have to have a private placement memorandum or other highly structured legal documents with some very specific disclosure information in order for you to comply with both state and federal securities laws. There can be some pretty serious and very onerous civil and even criminal prosecution risks if this is not done correctly.

If you have little or no experience raising investor capital from folks other than friends and family, you almost always need to hire a highly experienced mentor to guide you through the multitude of necessary steps to get you "Ready for Prime Time."

These days, angel investors and venture capitalists are directly, or indirectly, going to expect that you and your company have completed your homework and that you know what you need to have ready before the first fundraising contact.

This includes stuff like strategy, tactics, business models, action plans, competitive analysis, sales and marketing plans, business plans, five-year financial projections, short pitch decks, long pitch decks, fundraising action plans, one-page summaries, executive summaries...

Whew...

Carrying on: Let's not forget the razzle-dazzle securities laws compliant investor website designed, coded and implemented, the 10-minute video pitch by the CEO, the script for the 10-minute video pitch by the CEO, the creation of a securities law-compliant private placement memorandum (or some other kind of legally compliant binding document for investors to sign), etc., etc., etc., etc.

Oh, did I mention, etc.?

(Most of these "etc." will usually be company or industry-specific – while all the other above items are almost always applicable.)

All of that will cost you time, energy, effort and money – a nontrivial amount of money.

Then, there is ALWAYS a lot MORE time AND money, etc. required to make sure ALL the documentation and presentations and videos and webpages are creatively written in enticing but totally truthful “investor speak” that motivates the prospective investor to stroke the check.

Note that virtually all of the above time, energy, effort and money expended on these items are almost strictly for your fundraising efforts – and have NOTHING to do with all the other business of the business costs!

Also, all the above is just to get you “Ready for Prime Time” – which means that all of the items listed above have been fully completed and error-free, fully proofread at least three times from start to finish, are completely consistent with each other (this is a big problem since somebody somewhere is usually tweaking something like numbers that trickle through everything!), the website looks pretty enough – AND all the executives of the company that could possibly be in a position to talk to a prospective investor fully understand every single word of every document and understand every number and why every driving assumption was chosen.

Once you are genuinely Ready for Prime Time and you actually start raising money is when some of the other fundraising costs start such as due diligence fees just to get in front of some of the larger angel investor groups, travel and entertainment, pitch fees, filing fees, ongoing legal fees, etc.

All of this takes a MASSIVE amount of time, energy, effort and money to produce. For each one of these action items and milestones, WHO will do the work??

WHO will stop doing what they're supposed to already be doing inside the company so that they can manage other WHOs to do this work?

Remember, for EVERY single action item:

W Cubed = Who? Is Doing What? When?

Oh, and ALL of this will cost money that will significantly impact your cash reserves and reduce your runway.

All of This Is Why “It Almost ALWAYS Takes Money to Raise Money.”

All this is another reason that Massive Oversight #2 is almost always true – because virtually none of those thousands of business plans and financial projections that I’ve reviewed over the last three decades have included any amount of money for ANY of the multitude of line items to produce all the above documents, investor websites, and hire the right kind of highly experienced mentor, etc. – or anything related to seriously raising money from angel investors or venture capital.

All this means that your current five-year financial projections – and consequential cash projections are massively wrong unless you have already included the realistic costs for completing ALL of the above fundraising-related expenditures.

You might, just maybe, want to go change your financial projections to include these costs ASAP because these changes will trickle through EVERYTHING.

The updated numbers will impact your runway, the amount of money you need to raise, the projected ROI, the company valuations, probably most documents and pitch decks that you've written, the password-protected investor website pages and numbers, the private placement memorandum, your 10 minute CEO video – and other YouTube videos may have to be redone, and, you guessed it, more etc.

This time-consuming and costly iteration of fixing stuff every time the numbers change is unavoidable but can be greatly reduced by the right fundraising mentor if they are numbers-oriented AND are brought on board soon enough in the process.

Massive Oversight #5: "I’ll Just Pay a Contingent, Success Fee to Pay Anybody To Find All My Investors – That Way, It Does Not Cost Me Anything Unless They Perform.” – Is Almost Always a MAJOR Violation of State and Federal Securities Laws With DIRE Consequences for You and Your Company.

If you are in the United States – or if you plan on raising investor capital from folks in the United States even if you’re offshore, you are obliged to completely comply with both state and federal securities laws in this country.

Except for very rare exceptions, it is blatantly against the law for you to pay finders – and for them to receive – ANY kind of contingent, success fee for introductions to prospective investors. I tried my best, with no luck whatsoever, to figure out a legal way around this when I was raising money for my own deals for my own company.

There is black. There is white. There is gray – lots of shades of gray when trying to skirt around securities laws.

In my opinion and in the opinion of my securities attorney NONE of the grays were worth the very onerous risks of violating these laws.

(My own company got so big that my securities attorney said I had to start my own NASD broker-dealer company to handle just my own fundraising in order to stay legal. So, I started Goodman Securities, Inc. – and raised?$34 million ($110 million in today's dollars) from 1,342 angel investors that I personally raised for my own real estate, financial and software companies.)

The bottom line is that you can’t pay success fees because the risks to both you and your company are too onerous if you try to do this.

All of this is another reason you need an experienced mentor to guide you through all the stuff that "You don’t know what you don’t know."

I’ll leave a link in the comments below to a great article about the subject that’s written by a law firm that specializes in this sort of thing. I strongly suggest that you read this as a required homework assignment to keep you out of a whole bunch of other massive oversights.

Bottom line: If you cannot find investors by paying contingent success fees, how EXACTLY do you plan on finding a sufficient number of investors for all of the capital you need for your startup company?

Remember: No Arm Waving Allowed!

(Details: SuccessFees.com)

Massive Oversight #6: It Typically Takes Three Months-Six Months (and Sometimes a Whole Lot Longer) to Raise Investor Capital AFTER You Are “Ready for Primetime” and AFTER You Are Ready to Actually Start a Full-Time Effort with the Right Resources and an Experienced Mentor To Guide You On The Treacherous Road from Your Current Point A To Your Post Funding Point B.

Bear in mind that it generally takes 2-3 months of full-time effort just to get Ready for Prime Time.?

Once you hit the street with your offering, it typically takes 3-6 months (sometimes a whole lot longer) to find the investors you need to break escrow and legally transfer the investor's money from the escrow account into your company's operating account.

This means, start to finish – assuming you're lucky, your fundraising efforts can take a total of 5-9 months and sometimes a lot longer. This is why it is critical that your fundraising efforts need to start on Day One of your startup.

This means that you really can’t start looking for investors when your Runway of Existence is down to 30-60 days or less.

Regrettably, I have been approached by many hundreds of companies that I have had to turn away because they desperately wanted my help with their fundraising when they had less than 30 days of Runway.

What takes so long?

With very rare exceptions, long gone are the days when pre-revenue startup companies were funded overnight with their business plan sketched out on a cocktail napkin.

Angel investors and venture capitalists have rightfully come to expect the kinds of comprehensive documents, websites, financial projections, private placement offering documents, etc. discussed above.

If you don’t have ALL of this, most investors probably won’t take you very seriously and you probably won't rise above the noise level created by all the other startup company CEOs clamoring for investment.

Arm waving rarely motivates investors to stroke a check to invest in your company.

They almost always want to be able to drill down on specific parts of your numbers and see what your driving assumptions are for your five-year financial projections.

Have you calculated how many investors you will require for the funding you're seeking?

Let's assume that you need $1 million to execute your business plan. If your minimum investment is $100,000, then you will need about 10 investors. If you decide to make the minimum investment $50,000, then you need 20 investors.

If you need $5 million for your startup company, the arithmetic says you will need 50 investors at $100,000 each – or 100 investors at $50,000 each.

If you have been thinking in terms of a minimum investment of $10,000, you can do your own arithmetic to see how that translates to a massive number of investors that you have got to find, convince, close and actually collect the check from so that you can deposit it in your investment escrow account.

Now, calculate how many prospects you have to pitch in order to close one investor who actually gives you the check.

Let's say you need 30 investors. You may need to pitch 50-100 seriously good prospects to find one who will invest. This translates to finding 1,500-3,000 seriously good prospects for your deal.

Nota Bene: The above assumes you have an enticing deal, with believable and achievable driving assumptions that scale you to $30 million-$50 million by Year Five, a reasonable pre-money valuation and exchanging enough equity to investors to offer a motivating and enticing ROI for the investors who give you their checks.

How EXACTLY are you going to find and close this many investors?

Remember from above, all of the WHO that were going to do all the work to get you ready for prime time?

Now that you're Ready for Prime Time and ready to actually start raising the money and asking for the check, WHO in your organization is competent and completely knowledgeable to pitch your deal to investors?

You typically have one and only one shot with each prospective investor.

Since you can't waste a single shot with any prospective investor, WHO in your organization is going to handle the sales and marketing of your fundraising?

• WHO is going to get out in front and actually communicate with prospective investors?
• WHO in your organization is going to do all of those steps as their top priority – in addition to the other functions they serve in your startup company – and get it all done in three months to six months?
• How is all of that going to happen if YOU, the startup company CEO, are the WHO?

If YOU are the WHO, the three month-six month estimate above can easily take 2X-3X to get done – although, by then, you’re probably out of business.

So, if you are not going to be the WHO, then WHO will be the WHO and what will be the WHEN for the WHO so that you do not run out of Runway?

Massive Oversight #7: No Matter What, You Need to Make Raising Your Investor Capital PRIORITY #1 from Day One By Spending Time, Energy, Effort and Money on It from Day One.

If you believe that you can honestly get to and beyond meaningful breakeven cash flow by bootstrapping your startup company without investor capital, absolutely do that!

If you believe that you can get to meaningful revenues that demonstrably show proof of concept without investor capital, absolutely do that.

If you believe that you can do both meaningful breakeven cash flow and meaningful revenues of significance you might be able to completely avoid raising investor capital.

But, if you already know that your vision is for a bigger company that can rise above the noise in the marketplace, then you will probably require investor capital to get you to your most desired Post Funding Point B.

This is the GO/NO GO decision that I strongly recommend you definitively decide at the beginning stages of your company.

If you are way past the beginning stages of your company, then get started yesterday. You have a LOT of catching up to do – and that “Runway of Existence” is already starting to look like a taxiway – “A very short taxiway, Mav.”

Bonus Pop Quiz: Four Mission-Critical Key Questions on Your Fundraising That You MUST Answer ASAP

Whether we work together or not, here are four mission-critical key questions that you should ask yourself:

1. How, EXACTLY, are you going to find AND successfully entice each and every Angel investor you need for your startup company?
2. No arm waving. No sweeping generalizations. No illegal success fees. How EXACTLY will you get it done?
3. What are your top three dozen fundraising action items? “WHO? Is going to do WHAT? WHEN?” for each of these action items on your fundraising game plan?
4. Will all of the “When” be in time for?your company’s ticking time bomb cash flow needs?

Open up an Excel spreadsheet, label it Fundraising Action List and start entering every possible action item and major and semi-major milestone that you can think of that need to be accomplished that is specifically and totally focused on fundraising for your startup company.

Next, prioritize each line item and include the expected start date and end date.

Lastly, identify the human resource inside your company who is going to be accountable for the completion of each and every line item.

(Keep in mind for every name you put down – that person already has a full-time job and is probably wearing a multitude of hats of responsibility already. So, how are they going to work all those action items added to their job description?)

Having Difficulty?

A lot of folks – meaning most folks – have difficulty creating a comprehensive and inclusive list of action items and milestones for fundraising because they have never successfully raised capital from strangers before and are often clueless regarding the necessary steps.

That is certainly not meant as a criticism because most startup CEOs simply never had that experience before and it sure as hell is rarely if ever taught in school.

However…You CANNOT simply claim ignorance and ignore those four questions.

If you do, your company is probably already dead whether it knows it or not.

Need Help?

I hate watching startup companies fail. I have watched it happen NEEDLESSLY thousands of times during the past three decades.

That’s why my mission is to do everything I can to make sure my startup company clients don’t fail – I want to do all that I can?so they survive AND thrive.

My Chief ImpleMentor Service is specifically geared toward helping startup company CEOs avoid all those oversights described above – and a whole lot more.

I don't just help my clients with mentoring – I actually roll up my sleeves and actually DO some, or even ALL, of the action items and milestones necessary to help my clients with ALL 53 Steps on the Startup Path To Fundraising Success.

Please let me know if you would like my help.

Whether it’s me or someone else, get help from a qualified, experienced mentor to help make sure you don’t fail.

Thanks for reading this very long article.

(I started to break this into a series of separate articles– one for each chapter – but decided it was more important to get all this information out to you immediately in a comprehensive format – especially so that some of you can immediately benefit from this information if you are in the middle of your fundraising right this minute.)

I very much appreciate your time and your interest...I hope this information created massively beneficial epiphanies galore for you and your company!

If you gained at least one meaningful insight from this article, I would GREATLY appreciate it if you would Like it, Share it, Comment below and Subscribe to this newsletter!

Heartfelt best wishes for stellar success!

Robert

Robert Lee Goodman, MBA

CEO & Chief ImpleMentor

CEO RESOURCE LLC?

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StartupCompanyInvestors.com

DeviledDetails.com

StartupCompanyStepsToFundraisingSuccess.com

ChiefImpleMentor.com

[email protected]

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My 23K+ 1st Level Connection LinkedIn Profile:?Linkedin.com/in/robertleegoodman

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Note:

The above images are taken from Top Gun: Maverick by Paramount (one of my most favorite movies ever!) and are included here under Fair Use since they so appropriately illustrate what I am trying to teach folks about startup company runways. Copyright Disclaimer Under Section 107 of the Copyright Act of 1976; Allowance is made for ‘Fair Use" for purposes such as criticism, comment, news reporting, teaching, scholarship, and research. Fair use is a use permitted by copyright statute that might otherwise be infringing. Non-profit, educational or personal use tips the balance in favor of fair use. All rights and credit go directly to their rightful owners. No copyright infringement intended.