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Raising
Capital for Your Business – How Long Does
it Take?
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by:
Dave Lavinsky
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Most companies vastly underestimate the time
commitment necessary to successfully complete a financing. In
actuality, a company seeking financing needs to budget between 500 to
1000 work-hours to the capital-raising process, spread out over a 6-9
month time period.
The key processes in the capital-raising process include 1) perfecting
the business plan, offering memorandum, and other company due diligence
materials, 2) developing a comprehensive, targeted prospective investor
list, 3) contacting this list and responding to investor due diligence
requests, and 4) negotiating the transaction.
Completing the business plan typically requires at least 200 hours of
work. This time is dedicated to conducting the market research to
validate the opportunity, developing a comprehensive financial model,
determining the most effective way to lay out the business strategy,
and actually writing and proofing the business plan.
The next step, developing a comprehensive, targeted prospective
investor list is also very time consuming. There are thousands of
potential investors, each of which has very different tastes regarding
the types of ventures that interest them. Some invest by market sector
(e.g., healthcare vs. telecommunications), stage (seed stage vs. later
stage), geography, or a combination of these. Many hours must be
dedicated to determine which investors are the right fit for your
venture. This process involves creating a master investor list,
visiting each investor’s website to view investment criteria and past
investments, and determining who is the right contact at the firm.
To see how easily the time adds up, consider that only about 25% of
prospective investors who show an initial interest in a transaction
actually progress to detailed company due diligence. Only about 10% of
this 25% actually progress to a bonafide offer of funds, of which only
25% of these actually result in an investment transaction. So
completing a financing transaction requires, on average, contacting
approximately 160 pre-qualified prospective investors.
The due diligence process, where investors scrutinize the investment,
can also be very time consuming for the company. Investors often
request many documents, some of which can be easily retrieved from
files (e.g., prior tax returns), while others may take more time to
prepare (e.g., additional market analysis, customer lists with past
purchases, contact information, etc.). Finally, negotiating a
transaction can take a significant amount of time depending upon the
complexity of the transaction and number of parties involved.
Too many companies fail to raise capital since they are unaware of the
significant time requirements to do so. Those firms who understand
these requirements and budget accordingly are the ones most likely to
persevere and end up with the capital they need.
About the author:
GT Business
Plans has developed over 200 business plans for clients that
have collectively raised over $750 million in financing, launched
numerous new product and service lines and gained competitive advantage
and market share. GT Business Plans is the sister site of GT Venture Capital
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