When is the best time to look for investors?

This blog post was also featured on Fortune here.

There are lots of things that I think make fundraising exciting: the constant adrenaline, the prospect of new partnerships and advisors, the opportunity to share my enthusiasm for my company. But make no mistake: fundraising is hard work and requires a CEO’s full attention. There are no short-cuts, and a carefully timed raise can make for smoother sailing down the already rocky road of startup life. As someone who’s had experience with several startups (14, to be exact!), I’ve gained some insights over the years on getting investors on board.

When you have traction.
With only .05% of startups getting funding from VCs, it pays to have a strategy before starting fundraising. Investors aren’t going to be interested only in ideas; you have to show that you have something for them to actually invest in. When we first raised money for my company, we made sure that we had a minimal viable product (MVP) — even if only with a very basic set of functions — and made sure that we had paying customers on the platform (and therefore some revenue), to show that there was interest and demand for the product. There’s huge value in an investor being able to “touch and see” a product: it makes it seem more viable and real, and shows them that you can get things done.

Based on our early data, we were able to show a logical progression to a large market opportunity. The more proof points you can hit quickly and early on, the better — from the investor’s standpoint, it limits the business risk.

When you have a lead investor on board
I learned this one the hard way. When I was raising seed capital for Yieldify, I didn’t have a lead investor to help me organize the other 20 investors — so I spent a lot of time talking to individuals, pushing them along, and generally managing logistics. A lead investor provides capital and expertise to a fundraise, which is especially valuable to an earlier stage company.

Lead investors of course provide substantial financial support (typically 20-25% of a raise), but can also have insights into business strategies and ways to position the company for a strong fundraise. Having a lead investor also signals to other investors that you’ve secured a substantial vote of confidence, which also reduces perceived business risk. And a good lead investor is crazy-enthusiastic about your business — making them an extra (and influential) evangelist for your company and resulting in better recruitment of other investors.

The other thing a lead investor can do is to help advise you on investors worth talking to. I found, for instance, that talking to inexperienced angel investors was a huge time sink — and ultimately they weren’t in a good position to make informed decisions.

Before you need it.
Fundraising is a major undertaking: on average companies take about 40 investor meetings and a bit over 12 weeks to close a round. It requires persistence and sustained energy. When you’re out raising money, you have less time to focus on actually running your business, so it’s important to do this in the most efficient way possible.

From a planning standpoint, there are cycles in the funding world: summer (Q3) tends to be slow; in January people are often focused on budgeting. I’ve found Q4 to be the sweet spot when it comes to fundraising, since investors usually have a plan to invest a certain amount of money during the year and there’s more pressure to close deals in the last months of the year.

I generally recommend raising money 12 months before you think you’ll need it. Considering that 29% of startups fail because they run out of cash, this gives you a nice cushion in case the fund raise takes longer than anticipated. This means that you don’t have to worry about things like paying for resources to support the business while you’re out on the road. Last time around, I started raising funds 9 months before we needed the cash. It worked fine, but if I’d started earlier it would have been a lot less stressful.

In startup culture there’s a great deal of impatience (which is what also makes it exciting), but by taking our time to make the right decisions, we’re now positioned for profitability, and may not even need to do another raise. Sometimes, as they say, good things come to those who wait.