24 Jun Raising Capital, Mandates and Puzzle Pieces
Every entrepreneur in the known universe has to raise money at some point. This process can be long, difficult and extremely trying on every facet of your life, from your personal relationships to your health in some cases. But does it have to be? Rejection is part of the territory but it can certainly be made worse when you blame yourself for aspects that are out of your control or you don’t see any upside in the process.
Here are a few lessons that I’d like to share with those trying to raise money from institutions, VCs or funds of any sort. Please read on, this post will help you keep your sanity.
When a fund raises money from outside sources, that money comes with certain strings attached, such as establishing guidelines over the way the money is allocated. Mandates are structured courses of action that fund managers and associates must follow per these investment guidelines.
These guidelines become law in the case of funding, and if they are broken or bent in any way, investors can take legal recourse against the fiduciaries of the fund. So it is helpful to recall that at times, especially early on in your company, you may be asking investors to do something that they are legally unable to do, or they risk opening themselves up to lawsuits.
See the process for what it is: a puzzle with missing pieces
Raising money from funds is like putting together a puzzle, especially in today’s startup saturated environment. If you are doing it right, you will at times feel like you should be working for the CIA. There are social rules to follow, you sometimes need to take the long networking route to get your target, and it’s very much about saying the right things in the right place and at the right time to be effective. And even then, when all conditions seem aligned – you have a strong team and investors love your idea – they most likely still will not be able to invest in you. It isn’t personal.
You have to see the funding landscape as a puzzle with missing pieces. Knowing that funds cannot break their own rules of placing money makes this easier, not harder. Hopefully your piece fits into one of the open slots, but honestly in most cases, it doesn’t before you even walk into the room.
Be gracious, take advice, and build long-term relationships
Rejection is not the worst thing that can happen to you as an entrepreneur, but only if you approach it the right way. The moment of rejection stings, but when you hear the rationale – “your idea is great, but you are too early for us” or “we love what you are doing, but it is early for us” – do not necessarily be disregard it as empty language.
Parlay the rapport that you developed to ask for more feedback, and they may tell you how to contort your puzzle piece to fit their open spaces. The investor may like what you are doing but needs to see more traction or development. If they tell you don’t have enough users, start marketing. If they tell you your platform isn’t mature enough, help it grow up. LISTEN to them. They do not offer this advice unless they want to see you succeed and possibly cross their path again. Most investments don’t happen right away, they happen after a company has demonstrated the ability to persevere and adapt.
Above all, be gracious despite your disappointment and appreciative of the time that they spent looking through your deal. In doing this, you make it known that you value the relationship in the long run, not just the opportunity at hand.