When Should You Start Fundraising?

Every so often we hear from clients concerns along the lines of, "so-and-so told me that NO ONE will invest in my business until I have a signed lease."

And every time we hear that, the alarms start ringing in our brains. Here's why...

1. There are very few (if any) things in life that "NO ONE" will do. People regularly compete in hot dog eating contests. People have tigers for pets. People get married for the seventh time. You should automatically be skeptical of claims about what "everyone" or "no one" will do. Listen to what the person is telling you, but stay calm, and don't let those claims psych you out or have you thinking that there is only one way to do something. This advice applies to life generally.

2. Signing a lease is a very, very serious commitment. Most commercial leases are five to ten years long, and they have real financial, legal, and emotional implications. You should only be signing a lease when you are 100% certain that you can honor its financial obligations. What does this mean specifically? Here's a common example. If the Capital Budget you made during Business Planning says you need $400,000 to build out your space and get open, you should not legally bind yourself to a $5,000 per month for five years lease without having either (a) that $400k ready in the bank, or (b) 100% certainty that you can get all that money in the bank in time to pay your contractors, buy all the inventory, pay employees for training, and everything else you need to make it to opening day. Once that lease is signed, you cannot email your landlord and say, "OMG j/k on the lease I signed two months ago...I can't get the money to pay the contractors so I have to bail...SORRY!"  Once you sign that lease, you owe $5,000 every month for five years whether you're open for business or not.

So, yes, there may be potential investors who want to wait until you have an LOI or are far along in lease negotiations before they commit to your project, and that's fine, but once YOU sign a lease, YOU are committed...whether those investors write you checks or not. So you may have to hustle a little harder to find investors who will commit sooner.

Keep in mind that in your comprehensive Business Plan, you've already articulated a whole lot about the space you intend to lease for your business -- the size, location, space criteria, etc. -- so any potential investor should already have a solid sense of the space that you're seeking to lease long before you commit to anything.