Even if the stars align, everybody loves your business plan, the execution is well, all data points are above expectations, investors like you, you are still 4-6 months away from seeing the money.
Here is a hypothetical timeframe of events when you try to raise money on a Bridge Loan format:
Day 1: You send email or call a prospective Angel/VC;
Day 2: They usually reply the next day with a "sure let's meet".
Day 5: You guys still trying to negotiate the date, but it is decided that it will be the end of next week.
Day 14: First face-to-face meeting, you show the business plan to the investor, talks about the market, the product, etc.
Day 15: Follow up email from you, thanking him.
Day 16: He sends you 2 contacts that he wants you to present to them as well, to see what they think (usually people with industry expertise).
Day 17: You follow up with the contacts.
... (skipping days to make it go faster)...
Day 35: You finally met with the two persons. Now you contact the investor again.
Day 36: No response.
Day 37: No response.
Day 38: He manage to see his email from an Internet Cafe in Belize. Shoot, he is on vacation for another 2 weeks.
Day 55: You wait a few days after he is back and send him another email.
Day 60: You guys meet for a second time and you start talking about how much you need.
Day 61: He wants to introduce you to a couple of other investors (remember they hunt invest in packs).
...(fast forward)...
Day 80: You've meet him twice, meet with his industry contacts, meet with the other angels. What else? He asks you for detailed financial projections, balance sheet, business plan, biography of the team, etc.
Day 85: You get all that stuff together, send to him via email.
Day 90: He finishes reading the stuff and wants to meet again.
Day 95: You guys meet and there is a handshake for an investment. You think about going on a spending spree, but then you remembered that you read something on Marcelo's blog about how long it takes to raise money and decide to wait a little more.
Day 96: You contact your lawyer to start the paperwork.
Day 100: Your lawyer sends you a draft of the documents with a bunch of highlighted stuff for you to decide (Maturity date, warranty, discount, when it converts to equity, board seat, etc.). Gosh, you didn't know you had to negotiate all that, did you?
Day 101: You start negotiating with your investor. He asks you for a Right of First Refusal (what the heck is that?).
Day 103: Your lawyer finally explains to you what is the Right of First Refusal.
Day 104: You talk to the investor again, and he puts his terms on the table.
Day 111: It takes you a week to figure out what those terms really mean with your lawyer, with your other entrepreneurs friends, etc.
Day 112: You and the investor settle the terms, you get back to your lawyer with the decisions.
Day 115: A new draft is sent to you, you send to the investor.
Day 116: The investor forwards it to his lawyer and financial advisor.
Day 120: His lawyers come back with a couple of highlighted issues that they don't like.
Day 121: The investors tells you that you'll need to change a few paragraphs on the bridge loan doc.
...(fast forward after 2 more rounds of laywer-you-investor-lawyer)...
Day 145: Gosh, everything is done, but the investor decided that he needs to hire an accountant to verify if the business is in good standing, there is no shady banking deals, or no hidden debt, etc.
...(fast forward after a financial due diligence)...
Day 165: You schedule a meeting to sign the paper next week, because he is going to Toronto for the Holiday.
Day 172: He calls you and asks for a couple of days to transfer the money from his investments.
Day 175: You guys sign the documents and he gives you a check.
Day 176: You go to the bank and deposit the check.
This is a investment by a single investor using a Bridge Loan.
Equity financing is way more complicated on the legal paperwork (about 5-10x more terms and paragraphs). Imagine if you need 5 angel investors, how much time you'll need to dedicate to that?
At the end of the day, pursuing money should be on a "must do" basis, because it consumes so much of the entrepreneurs time that he doesn't have time to do the other important stuff, like talking to cusomters and building a product.
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Comments for "Why does it take so long to ...
October, 2007
