The Worst Months to Start Raising Capital
June 10, 2014
When it comes to the funding process, many things are simply out of your control. That’s why it’s so important to leverage the things you can control to your advantage. For example, choosing the right time of year to get the ball rolling.
Fundraising is a time-consuming activity. Even if you’re doing everything that can make the process as efficient as possible, like tracking critical financial and customer metrics, building close relationships with potential investors over time, etc. there are a number of exogenous factors that can have a significant effect on your fundraising process — and timing can be (almost) everything.
When to Start Raising Capital: Two Months to Avoid
There are certain times of year when VCs are ready to invest, and other times when it’s more difficult to get our attention. You might assume that there are a few obvious times to avoid: the summer months, Thanksgiving, and the December holiday season. But not quite. Here are the two times of year when it’s particularly difficult to raise funding — and they might not be your first guess.
December can, of course, be a frantic month as the pre-holiday rush sets in along with the end of the fiscal year for most. But it’s not December when most VCs aren’t taking new meetings. It’s January. Why? Because that big December crunch usually means everything that wasn’t mission critical gets pushed into January.
Once VCs return to the office for the new year, our focus tends to be on following up on those meetings, calls, and introductions that were a little less time sensitive. In other words, VCs January calendars are often already full by New Year’s Day, making it a difficult period for us to start something new.
The summer is, of course, prime vacation time. But for VCs, June and most of July are usually spent in the office. Of all the summer months, August is the one to avoid. Many VCs will disappear with the family for an extended break, or maybe even the entire month. While I don’t know how the trend started (it’s not as if we took a vote), being on vacation when the rest of your partners are is a self-reinforcing process, so there it is.
My Advice: Plan Ahead
Now that we’ve established that starting to fundraise in January and August will likely extend your process, the second part of this equation is the need to plan ahead to hit the best times of year.
While the time it takes to raise venture funding from first meeting to close can take as little as 5-6 weeks, 8-10 weeks is much more likely. Therefore planning ahead is vital. It’s helpful to think of the year in two blocks: February through June, and mid-September through November. That’s when VCs are most receptive to first meetings, and when you should focus your fundraising efforts to optimize for efficiency.
3 Timing Factors to Consider
When timing your fundraising process, think about these three factors:
- Cash-out date: The date you absolutely need more money in the bank based on your projected burn rate
- Desired flexibility: How much cushion you want
- Your plan: How you intend to stage your process
For starters, raising money when you credibly don’t need to raise — such as when you have a nine to twelve month cash cushion — gives you the most flexibility in selecting a high quality partner. Even if you expect to demonstrate product-market fit or hit that inflection point you have been working toward a little closer to your cash-out date, if your initial plan was to start a process in January or August, you might want consider starting the conversation earlier rather than later.
There Are Always Exceptions
If a VC is really excited about a company, he or she will make exceptions. In fact, if a you are getting attention in August or January, that’s a really good sign. It means VCs are so enthusiastic about what you’re building that they are willing to put everything else on hold or cut their vacation short to work with you.
What’s been your experience with timing a fundraise?
Image courtesy of Dafne Cholet