I met with a friend the other day who is looking for capital for his new startup. He's a great guy but he's not done any venture capital deals before. He asked me how long I thought it would take him to get the money.
"Assuming they like your plan, three months to a year" was my reply.
He looked at me blankly. "You're kidding me," he said. "It takes that long?"
"Sure it does. There are three phases: getting to know and trust you, getting to know and trust your business plan, and getting to an agreement. Each phase takes a minimum of a month, and can sometimes take a lot longer."
"But I've heard these venture capital guys can move really fast if they want to."
"Sure, if they already know of you and you've got either a monster success or a respectable failure already up your sleeve. But for a first time entrepreneur to get money inside three months would be really quite surprising."
He didn't look convinced.
"Look," I said. "How long did it take you to hire the last person you hired? Did you hire them on the spot, or did you call the people he used to work with and check him out first? How long did it take for you to feel comfortable with them?"
"The last guy I hired was our CFO. It took about three, four weeks."
"That's approximately how long it will take the investor to get a bead on you and start to trust you and understand you - assuming they have the time to dedicate to it. Then they will need to go through your plan and test the assumptions, and play with your technology. How long did it take you to write the latest version of your plan?"
"About a month. Look, I see where you're going with this - but that's still only two months."
"You forgot about Legal. Creating the agreements takes several weeks and sometimes costs up to a hundred thousand dollars, depending on the complexity of your deal. The process of closing means you need to add four weeks at least - lawyers can't usually do the paperwork in less time than that."
"Okay, I buy that. So why would it take a year?"
"Sometimes people like to see a few months of execution before they put down their cash, so they'll think of ways to delay the closing. You'd do the same thing if you were them."
"I can maybe last three months, but I can't even last six."
"Then make sure you've got your ducks in a row and you have multiple investors interested. Because if you only have one, they may decide to do the prudent thing and wait as long as they can, so they can see you in action."
I don't know quite how many conversations I've had like this, but the last point is usually the most relevant - making sure your business plan is excellent and backed up by facts and a solid team and sales history if you have one.
There are any number of reasons why deals get delayed but the most common is lack of preparedness by the entrepreneur. If you want the deal to close fast, you need to ensure the investors have everything they need at their fingertips - and the lawyers too. Deals can close quickly bu rarely do because of a lack of preparation. This is not usually the investor's fault.
John is a serial entrepreneur and investor, and the co-founding Partner of Hatcher+, a data-driven, globally-focused venture investment platform based in Singapore. In addition to leading capital raising and deal syndication, he is the visionary and architect behind the Hatcher Stack, the company's proprietary research and technology platform. Over the past five years, John has led numerous venture investments in early-stage companies, including ASYX, DocDoc, Dropsuite, Heardable, Invit, Inzen Studio, SocialCops, ThoughtRiver, and Telr - and syndicated over US$100Mn of additional debt and equity co-investment. IPOs and trade sales in which he was acted for the majority shareholder include Dropsuite (ASX:DSE) and Inzen Studio (ASX:ICI). His M&A work includes the merger of payment leader Telr with Dubai-based Innovate Payments, and the merger of Singapore-based companies DocDoc, and DoctorPage. Prior to co-founding Hatcher, John founded cybersecurity technology leader Authentium (acquired by CYREN in 2010), and acted as a director for global payments aggregator Mozido, and an advisor to Africa-based Gateway Communications, satellite technology developer MDS America, Kuwait-based Internet marketplace Sheeel.com, and Orion Partners, a $2B private equity fund manager based in Hong Kong.
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