Once a week, I get a panicked email from a founder who wants me to take a look at their startup and invest since they were looking to close a round, but a key investor or two decided to not participate.
Most investors (buyers) don’t like to be rushed. Whether that’s you trying to make a big purchase, or even waiting in line at the McDonald’s trying to decide what to eat for lunch. So, it is not surprising that I have not invested in a single opportunity where the need was to invest within a day or two.
I did get a chance later to talk to a few of the entrepreneurs and of the 5 I have spoken with, 4 shutdown their company because they were unable to raise their round. Most of them decided to move on and join another startup.
Even if you have good traction (growing 10% MoM) and a sense of product market fit, fund raising is very hard. In fact it is likely the hardest thing you will face as an entrepreneur. Some people claim building a product is harder, or getting customers is, but I think fundraising is tougher than either of those two tasks.
The main reason is that there is asymmetry and inefficiency in the market for information and opportunity.
In most cases investors do not know if a startup will make them money and founders do not know if an investor is ready to participate.
The best way to survive the “round did not close” issue is really to keep your burn rate really low or generate enough other income to survive longer. That’s easier said than done.
Keeping your burn rate low is the easier of the two things to do. Don’t hire would be my suggestion to most entrepreneurs. That’s usually the biggest cost in any startup. Payroll. So, if you and your co founder can make by without making the investments in people (or in inventory if you are an eCommerce company) then do it by all means. You might experience pain and longer working hours, but it tends to be worth it. Primarily because the chances of your company doing well after you experience a “almost funded, but did not” is low.
- Startup Closed
Generating enough income to survive is hard as well, but usually if you have specialized talent or skill, then consulting tends to be a necessary but good enough option. If you can get work in the area of your startup and get paid reasonable rates, then you can keep your dream going for that much longer.
If you will want to ensure your funding gets closed, then the first thing I’d advice you to do is to setup enough options with alternate investors (hope to have 10 interested and likely 3-5 might close) or have a way to keep things on simmer until your investors are ready. Since it will be a chicken and egg to get more investors until you get more traction, I’d recommend you focus on selling and getting more customers by focusing all your efforts on sales, instead of adding any more features.
