Lesson 4: Planning your Raise

Planning Your Raise: How to Create a Fundraising Timeline + Strategy.

When an airplane takes off, it needs enough runway to gain speed and take off. There are precise calculations that go into determining how long a runway must be based on the planes that are expected to land and take off from there. 

If there isn’t enough runway, the plane will either need to abort the take-off or it will crash. The same is true for your start-up.

You need to know your runway and calculate your next moves based on it. As a start-up, your “runway” is literally the capital you must keep your business running. You need to plan your fundraising–your take-off–around your available runway.

For example, if you have 12 months’ worth of cash and other financial resources (i.e., a line of credit) available to keep your business running, it is best for you to create a timeline with all the activities you need to do to raise capital (money) to keep your business running beyond the next 12 months. If you start fundraising a month before the money runs out, you will most likely run out of runway.

What to Do

Your timeline should include various activities to reach out to potential investors. In your 12–18-month timeline, pick a time to start actively fundraising. Like a pilot of a jet airplane turning on the engine and slowly picking up speed down a runway, you could use the first couple of months emailing people, attending conferences, building relationships, and making the rounds with venture capital in hot spots, such as New York, Boston, and San Francisco.

All activities should go on a formal calendar balanced against company events, i.e., product release or other key milestones and runway. If you plan effectively, you can fundraise and still be available for your team in sprints. Just don’t get sucked in the black hole of day-to-day management and lose sight of fundraising.

How You Are Going to Raise Money

Essentially, you need to know as an entrepreneur how you will raise money and you need to develop a strategy that works for your company. Make your process to raise funds as methodical as you can.

• Who are you going to target in the venture capital community?

• How are you going to gain credibility so that VCs see that other people believe in your start-up and will invest in your idea?

• How can you involve people who have smaller amounts of money to invest but are looking for companies like yours? 

• Do you know the “good” and “bad” times to raise capital in your industry with your target investors?

• It is commonly known that there are good times and bad times to raise capital for tech companies in the venture capital community. You to avoid the holidays (December – January) and usually summer vacation (July – August), so you’ll need to factor these months into your fundraising and runway plan.
  
  

The Power of Communicating about Milestones

Part of your strategy should be to present milestones of your company. For example, if a major milestone is that your company will launch its first product, it would be wise to build your timeline to include fundraising activities just prior to the launch, so you give investors an opportunity pre-launch to invest in your company. 

The perception would be that, after your product launch, your company will be worth more, so they will pay less if they invest in the pre-product launch phase. Other investors may want to wait to give you money to mitigate risk until after you hit a milestone, such as a product launch to see if it was a success. 

All of this should be taken into consideration with how much runway–money–you must keep your business running. If your product launch is three months before your runway ends, you could put yourself in a very difficult spot. 

Many of you are far from even having 12-18 months runway and are in the “hustle and grind” phase, so you may be thinking how is this important to me? Most serious investors don’t care at the pre-seed that you don’t have money, what they care about is “how you will spend/utilize it” and that you have a fundraising strategy, roadmap, and runway plan. 

Remember that no matter how great your team is, if you aren’t organized enough to have a basic 2–3-page business plan, roadmap, and timeline, you will likely never receive capital because even if an investor doesn’t ask for a written document, they expect you to walk them through it and appear as if you know what you are doing. Time to stop “winging it”.

Time to Receive the Money

Even if investors are excited about your idea and want to invest, it usually takes weeks, months or even a year before you receive a check, therefore plan out your major milestones–a product launch, a key hire, first paying customers, crowdfunding–in your runway. 

Time to receive isn’t always tied to but is typically related to the size of the check. Therefore, angel investor and angel syndicate checks tend to be 4-8 weeks, and venture funds 6-12 weeks. 

However, it could take anywhere from 3-6 months or longer sometimes. It’s rare but it happens. The key is to always be in communication with investors after closing a contract on their timeline to fund.