Raising investment this summer? Here’s how to close before the August holiday season
Founder frustrations are high in August: You want to drive their business forward – but with your customers, investors and often team otherwise indisposed – it’s incredibly hard work.
This is even more so when you are fundraising – where closing a round in a timely fashion can sometimes be the difference between getting to the next stage or closing up shop.
There are three peaks in the fundraising calendar.
- The run up to Christmas is most frantic, with both investors and founders wanting to get the paperwork done before the festive break.
- The second is the end of the tax year (April 5th), especially for SEIS and EIS deals. Investors are desperate to close deals that ensure their tax relief in the current year
- And finally, the run up to the August holiday season. People go on holiday and if a deal isn’t done by the end of July – you’ll probably have to shift your close to September – it’s that quiet.
The fundraising process is essentially a process of lining up your investors to agree to and sign your fundraising paperwork e.g. Term Sheets, Investment Agreements and much more (cheat sheet on everything you’ll need to do here.)
Until they all agree, you can’t close your round. And if you’re raising a round from a number of angel investors (the average for this type of deal on SeedLegals is 14), there’s a high chance that one or more will hold up your deal.
So, what’s a founder to do? Maybe you need money just to get through – or you end up not executing on your growth plans without a capital injection? This is a particular problem for seasonal businesses that need to spend in the couple of months following.
Luckily, we have your strategies covered. By our reckoning – you have three options:
- Receive a cash injection now, do a funding round later
- Close your round now with a smaller target, top up later
- Raise a ‘Bootstrap Round’ if your investors are family or friends
- Wait until September until you ramp up your fundraising again
1. Use a SeedFAST to get cash now
Perhaps your startup just needs a small amount of money to tide you over and you simply don’t have the time to put together a funding round. There’s a lot to do – create an investment pack, justify your valuation and negotiate with many investors to close your target and much more – and not a lot of time to do it in.
That’s why SeedLegals designed SeedFast – a way for one or more investors to put money into your business now, without the need for a full funding round.
This is an SEIS/EIS friendly agreement, where you don’t set a valuation. Instead, your investors will actually receive the shares when you close your next funding round – normally with a discount to the new investors to compensate them for coming in earlier.
You can create and send out a SeedFast on SeedLegals platform in less than 10 minutes and receive the money today.
2. Do a smaller round ASAP, top up at your leisure
But what if you’ve already opened your round, have investors committed and are looking to close?
With the SeedLegals, you can turn what used to be a 8-12 week process of drafting documents from scratch, Microsoft Word track changes and long email threads (and not to mention high legal fees) into a seamless process, creating all the agreements you need in a few clicks.
We also have tonnes of data that can help you set the dials on your funding round based on your company – to speed up your negotiations and close in record time.
However, for a founder it can often be a difficult decision of whether to close a smaller amount now or wait for those final investor commitments to come in – commitments that might take much longer than expected.
That’s why we pioneered Instant Investment – allowing you accept new investment into your startup at any time, without the need for a new funding round.
That means that instead of waiting to reach your full initial target – you can close the commitments that you have now, but with a provision that allows you to accept additional “Instant Investment”.
Before, this would have been a difficult decision of accepting less money in the round than you thought you needed – because you likely wouldn’t be able to accept any new investment without doing a new funding round.
But with Instant Investment – you can send out to new investors a proposal even after your round has closed in just a few clicks. Once they’ve signed and deposit the money – SeedLegals takes care of the rest – issuing them shares and automatically syncing your cap table.
3. Raise a ‘Bootstrap Round’
Closing out the legal paperwork of a fundraise can take up to 3 months due to back-and-forth negotiations with your investors. Professional investors often have a series of terms they will regularly require to be part of the documentation, which can hold up the investment.
But when raising from friends, family and people you know, they usually won’t have many requirements, if at all.
And that’s exactly the reason why we designed the ‘Bootstrap Round‘ – which allows you to quickly and inexpensively accept a small amount of money up to £100k) without creating and negotiating over long form documents that just aren’t needed at this stage in your business.
4. Do a full round after the summer
However, when cashflow isn’t necessarily an issue for their startup, founders can take advantage of the downtime in both the sales and fundraising cycle to get investment ready and do their homework – practice their pitch, refine their deck and make sure their company is in order.
Then, when everyone gets back from holiday, you can hit the ground running – prepared and ready to go.
So whatever your fundraising needs, take steps now to make sure your not caught out in the summer lull.
And once you’ve sorted your financial strategy by the end of July – you can sit back and relax. Who knows – maybe you should even give yourself a well earned break.