Some financing rounds seem to go really fast. Others drag on for months and months.
The problem with dragging it on is twofold--
a) The entrepreneur is distracted from doing what they need to do--i.e. running the business.
b) There really isn't any more actual information to pour over--it's just a lot of thinking and talking about the same things over and over again.
Most investors could probably get you money and docs signed within 10 days if they really needed to get into something, but that's probably not realistic for all deals. So what should the right amount of time be?
In my mind, it's three weeks from the day we meet. If you actually get a round together, there's no reason why any investor, fund, angel, or group, shouldn't be able to fund a seed round with docs signed within three weeks.
Here's the timing:
We meet.
The investor gets excited and thinks you have something. Within a few days, they should be able to convene whoever they need to make a decision. When I was at First Round, we had a protocol by which we could call an audible and get all the necessary team members together within 48 hours. It was as mandatory as you could make a meeting and we took it really seriously.
Great, so now that everyone has met you, you need to do due diligence, right?
Herein lies a lot of the problem--if you don't already have a sense of whether or not this thing is a thing, then you're probably a fish out of water in this area. The same goes for vetting the entrepreneur. The people I've backed don't really come out of nowhere. Because I'm in my market and in the flow of top teams and networked with the right folks, I'm never more than a character reference away through someone I trust and know well to just about all of the people I've backed. In many cases, I got to know the entrepreneur before they were pitching or even had a deck.
That's the difference between fulltime investors, angels who focus on particular areas of expertise, and "drop-ins". They're not well networked and all of the founders they meet essentially start out as strangers out of the blue. If someone needs to get to know your work or your industry from scratch, they're probably never going to get there. It shouldn't take more than 2-3 phone calls or introductions to potential clients or experts to stress test a company's offering or plan for one.
That leaves us somewhere in the middle of week two. Great, you get your due diligence back and you either make a decision right then and there or you wait to the following Monday partner meeting. If you get a yes then, there's absolutely no reason in this day and age that negotiating a seed round's legals should take more than week. The fact that you are a) investing in not much more than a team, b) in the risk taking business, not the asset protection business and c) in at single digit valuations should make you pretty flexible on the legals after a few key points like the price, preferred 1x liquidation stock (or a note with a cap), pro rata and some kind of agreed upon board construction.
The fact that most entrepreneurs don't focus on fundraising enough can drag this whole thing out a lot. I've been in processes where I've committed, but I won't write a check until at least 500-750k is committed (b/c I don't want to be part of a bridge to nowhere) and that has taken a long time. You've got to line up all your investor meetings back to back and clear out a couple of weeks to do this--filling the top of the pipeline with enough folks to ensure a positive outcome.
But on the investor side, you should at least be able to get to a yes in three weeks. There's just really no excuse for it otherwise.
And no's... no's should take no more than a week for 95% of them, and then two weeks for the maybes that turn into no's, which probably should have been no's to begin with.
Let's start respecting founders' time more and realizing that the more time we take, the more time it takes away from their business.
Plus, it effects our dealflow. The quicker I get to a conclusion, the more likely I am to see other deals from that source. If I take three months, then I'm pretty sure I can forget ever seeing another deal from whoever showed me the opportunity in the first place.
Tell me how I'm being unreasonable.