A Fund Raising Saga: When can you raise funds?

Yesterday, I answered several questions grouped together under the theme "What does fund raising mean?".

Another group of questions that was brought to my attention concerns the theme "When can you raise funds?".

Of course, I don't claim to have the perfect methodology. I'm simply sharing my experience and am not offering an exact science. Every case is unique even if they all share certain  common factors.

Not all companies needs to raise funds. It would never cross a  garage owner's mind to get listed on the stock exchange.  Likewise, a car manufacturer wouldn't hesitate to go and search out necessary resources.  

The analysis is the same for an Internet merchant. A good web agency specializing in e-commerce doesn't have the same needs or the same market as a technology based e-commerce platform.

If you want to raise funds for your business, the first thing you need to ask yourself is if the possibility exists, because you can be a brilliant entrepreneur but not be running a company that is able to raise funds. 

At the risk of sounding a bit mundane - the specialists will forgive me, when a 10M€  fund invests 1M€ in 10 different companies, 5 will fail, 3 are worth about the same 5 years later, one is going to double in value and the last one's value will soar to one x10 or x20.

Let's do the math: 5x0+3x1+1x2+1x15 = 20. 10 invested, 20 back five years later.
That's not bad, but it's no Eldorado!

So, if you've got a good quality company but whose value can't grow 10  fold in 5 years, then you're probably going to have a hard time finding professional investors. If the potential of each of the 10 companies selected wasn't to grow ten-fold, none of them would have been able to raise the funds.

To this vital point, I'd add the quality of the team, which is even more important than the quality of the product or service. Two or three associates is good, but being surrounded by a few particularly brilliant managers is essential. Otherwise, you can keep dreaming.

Quickly surrounding yourself with people that are better than you in certain aspects also shows your ability to recruit the best and get them to stay. Investors know that this is fundamental for growth and are glad to see that you can do it really fast.

So, let's assume that you're in an exploding market, your service is excellent and that your team rocks… you still need to take a look at the competition to see if they've left you a piece of the pie!

Why? Because when a market is exploding, it gives all the followers ideas, and they start thinking "why not us?".

And that's where the  "first come, first served" policy comes into play.

It's always better to be first, because most times there isn't enough room for everyone.
In any case, not many investors will throw their money at the followers if they've taken a look at the leader's project and didn't go ahead with it.

Raising funds, and doing it again, before the others do is also a way of making life much more difficult for your competitors, no matter what sector the business is in.

So, when should you raise funds? As soon as possible while evaluating IF it's possible!

Which brings me to tomorrow's theme: Why should you raise funds?

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