In the go-go days of the dot-com era, raising capital could be done within a few days and with a single-page summary, or sometimes even less. Before approaching investors today, firms need to be thoroughly prepared with almost a full due-diligence package and potentially a private placement memorandum (PPM) that can take even later-stage firms hundreds of manhours to prepare. In today’s climate, firms should expect to invest over a thousand man-hours to secure financing—as well as several thousands of dollars for needed legal assistance.
Although money is plentiful, investors are risk averse and more often looking for reasons to say “no” rather than to write a check. In our work with hundreds of firms over the past several years, we have seen that the biggest mistake a CE O can make in this environment is to try to raise funds using only internal resources, such as his own time and effort. From our perspective, it is virtually impossible for the management team—the CE O in particular—to meet the day-to-day demands of growing a successful firm and also have the capacity to raise large amounts of growth capital in this current market.
Something is bound to fail in the process—and often the consequences of under-resourcing the fundraising process leads to companies that hit the wall, and/or CE Os who are asked to step aside.