146 days to raise funds

February 21st, 2011 → 12:47 pm @ // No Comments

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I’m returning from the conference of the Australian Association of Angel Investors. Their conferences are world-class, and Angel Investors can learn a lot by attending.

Among the other information presented was the average time to close a deal during 2010… 146 days.

What is reasonable?

Is it reasonable that deals take almost five months, on average, to close?

When I was an entrepreneur trying to raise money, I was always disappointed, and sometimes angry, at how long it took.  Occasionally I’d be in a situation where an investor would hear the elevator pitch, get excited by the opportunity, and write a check immediately; but more often, I went through the long grind of presentations, due diligence, and terms negotiation.

Now I see things differently.

Why I changed my mind

The Angel Investors aren’t looking for a one-night stand.  They want a meaningful, long-term relationship with an entrepreneur they can respect and trust.  So entrepreneurs who do get the quick cash may find they’ve been funded by passive investors who will bring little extra value.  The investors who take the time to get to know the founder, and the business, are more likely to back up their cash commitment with advice, contacts, and perhaps Board work.  Taking a long time to raise funds can be stressful for the entrepreneur, but it allows time to form high quality investor/entrepreneur relationships.

Quick deals versus slow deals

Of course, just as a quick deal may be a great deal, a slow deal may also be poor one.  Some investors do waste a lot of time in their processes, encouraging entrepreneurs to present to them even when they have no intention to invest.  Such people are, in my experience, the exception.

Most investors are as keen to get the deal done as are the entrepreneurs.

The difference is just that most investors have learnt to avoid one-night stands.

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