Chapter 1: The Funding Dilemma

A company approached me for assistance in raising $10 million. Initially, my commission was set at $300k, but I declined for several reasons.

This scenario required careful scrutiny to avoid a potential misstep that could lead to wasted effort. The company said, "We need to secure funding for our pharmaceutical venture, aiming to raise $10 million to develop our product."

I responded, "Have you secured funding previously?"

They replied, "Yes, $580k during our seed round."

"Great! So you have a minimum viable product (MVP)?" I inquired.

"Not yet; we plan to develop it post this funding round," they informed me.

"First, I’ll need a breakdown of how the initial funds were utilized. Investors will definitely want to know this," I stated.

"That's fine. We can offer you 3% of the raised amount," they proposed.

"Alright, I’ll draft a plan and send you some questions," I responded.

"Sounds good!" they agreed.

I forwarded a comprehensive timeline for the next two months of fundraising, outlining necessary document revisions. We would need an elaborate financial model to clarify the previous funding's usage, updated market research to validate the new product's demand, and enhancements to the company branding along with a landing page. I estimated a budget of around $30k to complete all these tasks within the given timeframe.

"That’s above our budget. We thought the commission would cover everything since we’re raising $10 million, which would net you $300k," they countered.

"That’s not feasible for me. Best of luck!" I concluded.

While some may accept such terms, knowledgeable professionals would not. On the surface, $300k seems tempting; it could sustain an average person for years or even allow for the purchase of multiple luxury cars. However, is it realistically attainable?

The pharmaceutical sector remains attractive, especially post-COVID, and securing investments for a company with a specific drug is certainly feasible, albeit not straightforward.

Typically, I represent companies, connect with suitable investors, and present opportunities effectively. But why not proceed in this instance?

In this field, a fundraising consultant or investment broker's primary asset is their reputation.

Several warning signs emerged with this company:

1. They have prior funding but show uncertainty about how it was allocated. Each round of funding should be driven by clear objectives, and the company must meet those goals before seeking additional funds. If you request money to build a bike, you should be able to show me the bike before asking for more.
2. They hesitate to invest $30k to secure $10 million. This is akin to refusing to spend $3 to gain $1000—it doesn’t add up. Any entity seeking investment should allocate a portion of their budget toward fundraising efforts.
3. Their product appears overly scientific and ambiguous. Any company pursuing a second funding round should understand their offering thoroughly. Even a company called "Nothing" recognizes what it sells. If you’re seeking funding for an experimental product, that should be openly stated.

The "fake-it-till-you-make-it" attitude is particularly risky in the health sector. Unlike other industries, where one might get away with vague claims, investors are cautious due to past failures, such as Theranos, which deceived investors until their funds were depleted.

Is Theranos the only example? Consider the $1 billion fraud scheme involving Outcome Health.

What’s the takeaway here?

My consultancy role as an investment broker is not something I offer lightly. Generally, a healthy startup should be capable of securing funding independently. However, there are exceptions where I might assist if the CEO and team are deeply engaged in product development and need expedited growth. In these cases, I charge a small commission alongside a fee for my time.

Recently, I aided a European company in closing a $500k seed round within weeks. Key factors included:

• Confidence in their industry-disrupting product.
• A positive team dynamic that genuinely made me laugh during our meetings.
• An understanding of the strategies I proposed, which they promptly incorporated into their budget.

Note: Professionals in fundraising often operate like undercover agents, bound by NDAs that prevent them from sharing details of their achievements. It’s always beneficial for a firm to demonstrate their own efforts in securing investment rather than relying solely on brokers.

Section 1.1: Essential Takeaways

I frequently advise my clients with fundamental principles:

• If you’re unwilling to invest in your business, why should anyone else?
• Simply putting in effort is expected; financial commitment is equally crucial.
• Healthy investment is often a need rather than a want. Raising funds merely to appear successful can lead to neglecting product development, which can be detrimental.
• Reflect on whether you seek investment out of fear of risking your own capital. If so, you may become what you dread.
• Allocating funds from investors is easier than using your own. Consider how your budget might change if it were your money at stake.
• Starting a business while maintaining a full-time job with a casual attitude can be a recipe for failure. Serious ventures require unwavering dedication.

I tend to analyze the personal profiles of those I work with. Many companies seek funding, but only a few possess the necessary attributes for success. Those launching businesses for luxury reasons are often the most concerning clients.

Section 1.2: The Path to Successful Fundraising

Fundraising should become increasingly manageable over time. Logically, the better your product aligns with market needs, the lower the risk for investors. If your vision is executed correctly, capital will flow in from various sources.

I’m Al, a business consultant based in Zurich, Switzerland, dedicated to providing value to my readers. Follow me on social media if you’re interested in more insights from my content.

I also contribute to my startup's blog.

Note: I’ve spent over a decade crafting plans, decks, and models for companies that have raised upwards of $126 million, and I've recently begun expanding my role into investment brokerage.

This content should not be construed as financial advice or a guide on fundraising methods. Each individual and company has unique strategies that work for them.

As I shift my business model to focus more on the end customer, I plan to reduce my consulting work at the end of 2022 and emphasize content creation for a broader impact.

Wishing you a fantastic day,

The first video titled "How To Raise $10 MILLION DOLLARS (+ FREE TEMPLATE)" provides insights on effective strategies for fundraising.

The second video, "I Set a $10 MILLION Company Goal - Here's How It's Going... (2024 State of the Company!)" shares updates on a company’s progress towards their ambitious fundraising target.