A common funding mistake

A common funding mistake that I see many entrepreneurs make is a lack of communication with their potential investors.  It’s becoming prolific, so I felt inclined to write about it.

If you’re raising capital, and you’ve got a handful of investors who are committed, its imperative that you communicate with them in a frequent and regular manner.  You can talk about progress you’re making in fundraising, growth in the business, any struggles you’re having, and any help you need.  The last 2 are pretty important because they show your investors you’re thinking clearly about your business and will be honest with your investors about the ups AND the downs.  Transparency is key.  Your investors can be your biggest supporters and can help out many ways, but if you don’t keep them in your circle of trust, they won’t help, they might be surprised with things turn south, and they’ll feel misled.  Clearly you should choose your investors well, but if you treat them like the partners they are, you’ll build a business from the same side of the table.  Good investors know how sausage is made.

But I digress.  The message here is to communicate with regularity and frequency.  An email about once a week is the right rhythm (for me anyway).  If you go completely silent on an investor, then 4 weeks later provide wire instructions and signature pages, they might back out.  Here are some of the reasons I’m used to hearing:

  • I found another deal that was more interesting.
  • I didn’t feel a sense of urgency.
  • I felt like the founders were shopping around to get a better offer.
  • When the closing docs came, I asked for an update and the company looked very different then when I committed.
  • What company?  I don’t remember even giving them a commitment

There are probably other reasons too.

This is such an easy problem to fix, it saddens me to see it happen all-to-often.  Here’s your 2 step plan to ensure it doesn’t happen to you.

  1. Communicate with your investors weekly and transparently – ask for help, report progress, identify areas of weakness.
  2. Close your round quickly – no later than about 45 days after the ‘start’ of fundraising.

See, easy.  Now go close your rounds people.