The #1 reason why you can't raise $5m (and what to do about it)

The Secret to Raising Small Rounds F.A.S.T. Even In This Super Tight Market

Recently, I ran a poll asking how much our readers were looking to raise in Q2. And the results were a bit surprising… 155 companies are going for a collective $500M+ in Q2.

That’s ½ Billion Dollars of activity, just inside my newsletter!

Approximately 22% of people are looking for more than $5m … and the thing I found interesting is ~44% of people who responded are looking for less than $1m.

To all of you looking for “More Than $5m” …

Here’s the counterintuitive thing about raising 5-10m rounds in today’s markets.

First, understand that in the recently-ended Era of Easy Money, trillions of dollars in capital was chasing after the same finite pool of deals:

Because of this huge supply/demand imbalance, pretty much everyone was willing to

• move fast
• pay a premium
• …. and spend no time on due-diligence.

Why? Because investors were expecting another high-priced investor to be just around the corner to keep pushing valuations up.

But the 2022 rate hikes followed by the SVB collapse put an end to that game.

The Era of Easy Money is Over!

Today, investors have to perform REAL due diligence, which is why it takes just as much time to place $20m of capital as it does $1m.

This means for most “real” sources of financing, they “lose” money on smaller deals because of the costs for underwriting, legal and all the hard work of real due diligence.

So if you’re looking to raise ±$5m of capital – where you’ll be talking to real finance professionals – here’s my #1 piece of advice…

Forget about venture capital, private equity, or any institutional investor. Even if you could get a check from them, it’d probably be on such terrible terms it wouldn’t be worth taking.

In fact, forget any investor who doesn’t live within a 50-mile radius of you.

If you want to find ±$5m F.A.S.T., the best place to find it is in your LOCAL ecosystem.

This is especially true for companies NOT located in major capital markets like San Francisco, Los Angeles, Chicago, Austin, New York, Boston, or Miami…

And even more true if you don’t think you know any “rich people.”

Because here’s the cold hard truth about raising smaller rounds in today’s market conditions…

I have had more people call me in the past three weeks than in the last 10 years saying “I had a $10m round that was basically closed, and then all of a sudden it died.”

Keep in mind that these are CEOs of real companies with real boards and real relationships in banking and capital markets.

So if those guys are struggling, how are you going to get away from unreliable VC and PE investors who can back out of deals at the last minute, and break into the many different “Country Clubs of Money” across the nation to unlock your next round of financing?

You start by running an effective “Retail” round with Friends-of-Friends, High Net Worth Individuals, and Small Family Offices!

No matter how much you get from doing this kind of round, you can use that capital to optimize your business operations, fill in gaps in your management team, install financial controls and reporting systems, and get proper governance in place.

Once you can demonstrate you’re a “real company” and not a “risk”-play that looks more like a startup, then – and ONLY THEN – do you go raise a proper institutional round.

Sure, it’s less convenient raising capital $25k-$100k at a time. But there are some important benefits to starting small and then scaling up.

Not only does this give you a chance to practice your pitch on friendlies and gain experience running an organized capital raising process (like the F.A.S.T. Funding Method)…

It gives you a chance to generate “high value” introductions to the investors in your local community who – if you have them on your cap table – can unlock the next tier of capital.

PLUS! By avoiding large checks too early, it also keeps YOU in control.

So why is it that the majority of people who talk to me about raising money want to skip over this “easy” source of capital and go straight to cold outreach to professional investors?

That’s what I’d like to find out today.

If you are one of the people reading this who are looking to raise ±$5m in Q2, would you do me a favor and drop a comment below with the SMALLEST check size you are willing to accept?

-Oren Klaff

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