How long do negotiations with investors usually go on for?
I’ve had a few meetings with a potential investor, but it seems to be dragging on a bit. Surely, if they liked what they saw, they’d be putting their money on the table, right?
You may have heard about Andy Bechtolsheim investing $100,000 into Google at the end of his first meeting with Larry Page and Sergey Brin. But you are not Page or Brin; and for almost everyone else funding can take a surprising amount of time.
Angel investors typically invest smaller amounts (less than $1 million usually). They’re often putting up cash for an informal advisor role and can potentially invest on gut feeling.
Even so, in terms of the timing, from first meeting to money in the bank, an angel investment could take about a month to complete.
For institutional investors (investing more than $1 million), the process is usually longer – 60 days at a bare minimum, but a more likely scenario would be 90 plus days. Why does it take so long?
There are a number of reasons:
- You’ve wowed them at your first and subsequent meetings. The investor may like what they saw, but there’s the rest of the partnership to convince too.
- The investor has a duty to their underlying backers to do due diligence (accounting and legal), understand the product and the market opportunity for the product to ensure they’re investing in a worthwhile operation.
- If the investor is planning to take an active role in the company, such as joining the board, they need to know and understand your company and the product.
This process may seem heavy weight, but unfortunately it is the nature of VC investments. It also explains why VC’s are hesitant to invest small amounts. It is just not worthwhile for the amount of effort required.
Nevertheless, if you think the process is taking some time, then we’ll need to look at what you mean by dragging.
If the investors are in contact, and asking lots of questions – great! This is what you want. It means they’re interested in you, they want to understand your business, but they also want to make sure they’re not going to get burned.
They’ll be painting a picture of what it is you can bring to the table, and see how well it fits with them – and this might take some time.
If they’re non-responsive, and you‘ve not heard anything from them in weeks, then they’re possibly just not that into you.
This isn’t great form. The investor should tell you if they’re pulling out and give you some feedback as to why.
But if you’ve not heard from them in a while, it might be best to move on. Of course, they may just be busy on other deals or helping a portfolio company through a crisis. So, before you write them off, it is worthwhile to check, if you can.
So, if you feel the process is dragging, but you’re still talking, don’t lose hope – you’re still in the game.
They liked what they saw, and they want to know more before putting their money on the table. An investment of their time leads to an investment of their money.