How to Raise Funds Faster Amid Venture Capital Slowdown

People gather around a speaker during a lunch time seminar in Washington, DC, on March 13, 2013. (Mandel Ngan/AFP via Getty Images)

Commentary

The venture capital fundraising market remained slow in the first quarter of 2024, so business founders have been forced to turn to angel investors. Raising money from angels can be slow and painful. Here are three ways to relieve the pain.

You’ve done everything you should to interest angel investors in your hot company, but how do you get them to pull the trigger and invest?

You already know what it takes to attract investor interest: Build a great product for a large market, recruit a great team and set up a blue-ribbon board of advisers, file patent applications, sign up customers and partners, showcase all of the above on a good website and investor PowerPoint, and prepare reasonable offering documents. You even have had great meetings with potential investors who say they want to invest, but it’s taking forever for the investors to send in the checks and wire the funds.

What do you do?

Here are three ways to get angel investors to pull the trigger faster:

1. Never announce a larger amount than you’re likely to raise.

• Have a smaller offering or offering range, but allow for the board to expand the size of the raise.
• An oversubscribed offering can make your company look like a winner, while an undersubscribed offering can make it look like a loser.

2. Create competition for the investment slots and a sense of urgency.

This is easier said than done, but here are some techniques to consider:

• Don’t be overly persistent or seem overanxious.
• Announce a deadline, but allow for flexibility; don’t have an open-ended offering.
• Have the first investor (ideally a well-respected investor in the sector) lined up before you officially announce the raise. This implies that the terms are set and could short-circuit unwanted negotiation.
• Make sure that your Series A raise is close to occurring and communicate that the current-round investors will get much better terms than those who wait for the Series A.

3. Consider building in incentives for the earliest investors.

This can cause securities law problems, cap table complications, and other headaches (and your chief financial officer will hate you), but these features can sometimes be effective:

• Issue warrant terms that are less generous over time (e.g., 20 percent warrant coverage if you purchase by June 30, 15 percent if by July 31, 10 percent if by August 31).
• Provide for similar increasing stock pricing to encourage early purchasing.

By targeting angel investors with the right terms in the right way, business founders can overcome the slowdown in venture capital.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.