Here’s the scenario. After finding your first investor and then having a flurry of activity over a month or two (see related article titled “The Domino Effect of Fundraising”) that gets you to something like 75% of your fundraising target, you hit a brick wall. You still have a handful of interested investors but none seem to be making a decision. Because the fundraising process is taking much longer than you thought, you dialed down the fundraising activities to about 20% of your workload so that you could spend 80% focused on the company. Now what?
First, you should do some soul searching on the need for the rest of the funds that would get you to your goal. With at least a month or two having gone by since you initially set the target amount, and assuming you’ve continue to operate with Lean Startup principles (order book here), you should now have several additional data points. Have you validated some new and important aspects of your offering or business model? Does your resource/staffing plan still seem valid? Have any new risks or opportunities entered the equation?
Questions like these should help you determine if the original fundraising amount is still critical to reach. If so, then you’ve still got some work to do. In this situation, I commonly recommend flipping your workload to 80% fundraising and 20% company operations. Pedal to the metal, cycle back through the remaining interested investors. Use your existing investors and advisors to help close some of them. Find out specifically what concerns they have or additional information they need to make a decision (see related article titled “Getting to Closure with an Interested Investor“). But put a check mark in either the “definitely no” or “definitely yes” column for each one. It’s possibly too late to bring new investor prospects to table but not out of the question if it comes from a strong referral (like one of your existing investors).
Along the way, make sure to understand why investors aren’t opening their check book because anything that comes up more than once should be put on a list of things you need to work on. I’ve published my list of common inhibitors/issues here.
If this last ditch effort doesn’t return results within a couple of weeks, you’ve got to reassess. Just like you do when faced with surprises (ie – lack of validation) on your product or other aspects of your business, you will need to adjust your expectations, plans and/or resources based on the fundraising you’ve achieved. And hopefully you haven’t been spending lately based on the assumption that you would reach your goal (see related article title “Don’t Spend Your Fundraising Goal Until it’s in the Bank”). Keep focus on specific accomplishments or milestones you can reach that will significantly benefit you the next time you enter the fundraising phase. This includes making sure you’re clear on the expectations of your current investors in order for them to re-up during the next round.
One more thing. If you decide to stop your fundraising efforts short of your original goal, let it be known that your round is closed and you are execution mode. This doesn’t mean you can’t let a late-coming investor write a check. But from a perception standpoint, startups that appear to be perpetually raising money seem like they are failing. Instead, “close the round” and execute like crazy so you can show enough new traction and other milestone achievements to raise money again in the near future. You should know what some of the bigger inhibitors were for the investors that didn’t invest (see related article titled “Having Trouble Raising Money?”). If solving these inhibitors is consistent with your vision and business strategy, then work on them aggressively.
I’ve got a pretty comprehensive checklist of things you could attempt to achieve to convey lower risk to your investor prospects (see related article titled “Boosting Valuation Before You Have Revenue Traction“).