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Fundraising Rollercoaster Oliver Evans LBS MBA 2016

The Fundraising Rollercoaster: A First Timer's Perspective

"I didn't know then how wrong I would be." Oliver Evans, MBA 2016, takes us on a journey through the highs and lows of startup life and what you can do to prepare for the fundraising rollercoaster.

 

I’m flying somewhere over the Atlantic from London to New York about to take my first steps into the world of startups. It’s not something I ever thought I would do, but when a friend asked me to spend six months helping set up his New York-based healthcare business I jumped at the chance.  One of my challenges is to help them with fundraising, something which I think can’t be too hard for a strong business with a great management team and already close to 40% of its funding requirements. I didn’t know then how wrong I would be.

 

The Playing Field

 

Our business is not one of the ubiquitous tech plays currently operating in the healthcare space.  Rather, we’re setting up traditional bricks & mortar medical centers which focus on helping expecting and new mothers overcome some of the challenges associated with motherhood. The cornerstone of the centers is a new type of treatment program which has been clinically proven to be highly effective at treating mothers suffering from mood and anxiety disorders related to childbirth.

There are many challenges, some similar to what all new businesses face and others specific to our industry/business. For example, we need to navigate complex U.S. healthcare laws and regulations and build relationships with referring physicians and health insurance companies. We are raising funds to help us overcome some of these challenges (lawyers and lobbyists are expensive!) as well as to set up the first center and provide a working capital cushion for our first six months of operation.

 

Into the Unknown

Two weeks in and the proverbial tumbleweed and chirping crickets are in hot supply; less so eager investors. My scattergun approach of calling, emailing, LinkedIn messaging and using any other form of communication I could think of to contact potential investors had proven less than effective. This wasn’t helped by us not having polished teaser decks, a fully ironed out business plan or any existing track record of setting up and operating a business.

 

"Fundraising requires meticulous planning and strategising from the very beginning."

 

My first lesson is a tough one. Fundraising requires meticulous planning and strategising from the very beginning. Prepare polished versions of pitching materials and resolve any question marks with the business plan before approaching investors. List all potential investors and start with those most likely to invest or those closest to the founders. Work outwards from there. Family and friends are likely to be less sophisticated and more forgiving, but will nevertheless ask questions which can be used to refine later pitches.  Later investors will be encouraged if they see family and friends invested. And, of course, it pays handsomely to personalize meetings with investors as much as possible in the form of coffees, lunches or dinners rather than contact them through calls or emails.

 

Hard Truths From The Frontlines 

Six weeks in and it's getting personal. We’ve been ignored. We've been rejected. Our business model and assumptions have been challenged. We’ve been told our pitching materials are too optimistic, too pessimistic, too short and too long. We’ve even been told that we’re not personally invested enough because none of us will lose the shirts on our back if this thing fails.  In fact, we’ve been told everything other than “count me in”. The fact is that everyone has a strong opinion in this space and such opinions often conflict.

 

"Six weeks in and it's getting personal.  We’ve been ignored. We’ve been rejected.  Our business model and assumptions have been challenged." 

 

My second lesson is a tougher one. The fundraising process will inevitably ask confronting questions of you, your team and your business model. This begs the question, when should founders learn from these outside influences and demonstrate humility and when should they back themselves and their own ideas? There is no easy answer, yet getting this balance right is crucial. For us, we had a core belief in our treatment program and the mix of skills and expertise which our management team brought to the table. Everything else was up for discussion. From the type of ancillary support services which we would provide at our centers to the third parties with whom we would partner to our referrer onboarding strategy, we were willing to learn from and adapt our business model based on outside influences.

Three months in and we’re starting to make some headway. Some investors are engaging with the materials, others are agreeing to second or third round meetings and several invested. The seed, angel and VC investors are still all saying the same thing – they invest in “individuals and management teams, not ideas”, “rapid scalability”, “businesses to which they can lend their expertise” and “10x returns”. Sure, everyone knows the characteristics of great investments but how do they identify them, and more importantly how can we demonstrate such characteristics to these groups? 

 

Riding The Rollercoaster

My third and perhaps most important lesson is that persistence and timing are crucial.

As you move further away from targeting family and friends as investors, it takes exponentially more work to both track down and pitch to potential investors. Finding common ground with more distant investors, such as through shared connections, knowledge of an industry or experience in a geography, becomes a crucial way to build trust.  Alternatively, developing a deep relationship with an investor may help you to understand his or her motives: do they care about a certain cause (e.g. in our case women’s health), helping out a community, having their name up in lights or something else?  

Linked to persistence is timing. It plays an important role, both in terms of the performance of your own business and that of your target investors’. Obviously, investors love to see businesses hitting their key milestones. They also like to invest when they themselves are on a good streak. Tapping into such dynamics can hugely influence the success of fundraising efforts.

 

"My third and perhaps most important lesson is that persistence and timing are crucial."

 

Almost all startups will live or die based on their ability to raise funds. Some rely on their underlying business strength or track record. Others rely on the connections, charisma and salesmanship of their founders. Whilst others might think it’s all to do with having polished teaser decks, robust financial models and portraits of rosy futures. Whilst it’s clear that all these things matter and do so to varying degree amongst different investors, large doses of good luck, timing and persistence are also key.

Six months in and over countless coffees, lunches and dinners we’ve nearly finalized our seed round. We’ve managed to bridge the gulf between what we are saying and what investors are hearing. We’ve achieved this by investing time and effort to building relationships and trust with investors and by catering to their needs and motives rather than our own. The fundraising journey has been rewarding and satisfying but also challenging and confronting.  If, when flying across the Atlantic I had known then what I know now, I would have still taken on this challenge. That said, I would be lying if I said I wouldn’t be feeling a little daunted at the same time.  

 


 

The LER would like to thank and acknowledge Graeme Burns (MBA 2016) for making this article possible. 

 


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Oliver Evans LBS MBA 2016
Author: Oliver Evans

Oliver is a London Business School MBA 2016 and a consultant at The Boston Consulting Group.

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