Raising money for a company is a time consuming process at the best of times. The process requires lots of preparation, many meetings and worst of all, can take senior managements eye off their primary job – running the company!
Because of the time and effort that fund raising requires, it's easy to be seduced into fixating on a potential investor who spends serious effort on diligence.
Serious diligence doesn't necessarily lead to a term sheet and money. Even if you are brought in to present to the full set of decision makers, the odds are not in your favor of getting a deal consummated – in my own experience, only about 30-40% of companies that present to a partnership get approved for investment.
If you fixate on one potential investor you:
- Lose leverage in negotiating the terms of the financing IF you get a term sheet. Having other potential investors keeps momentum going in the funding process. Momentum gives you options if you don't like the terms of a specific deal.
- Lose time in getting other potential investors through THEIR diligence process when the investor of your fixation says no.
The first is annoying, the second can be deadly – time = money and if you haven't reached profitability yet, it's the only fuel you have in the tank. Running out of fuel is a bad idea!
How do you avoid investor fixation?
Juggling responsibilities creates time pressure (too many things, too little time) and is a major source of investor fixation. Fund raising is a full time job. If you are the one fund raising, delegate your other responsibilities to the team and focus your time and energy on the fund raising process.