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How long does it really take to raise startup capital in Australia?

Writer's picture: Warwick DonaldsonWarwick Donaldson

We’ve all read those capital raise announcements where the founders seemingly raise large amounts of money in a short period of time.


I know that you’ve all fanaticised about that being your company. There is seemingly a lot of glory in it.


But, these stories are a polished story that is aiming to build the reputation and confidence in the startup by leveraging the reputation of their investors and journalists. However, an unintended by-product is that it induces anxiety, FOMO and unreal expectations into the founders that read it.


These articles are just like Instagram…. Parading the dream to those that don’t have it.


But can a startup really raise millions of dollars in just a few weeks or months?


Well, to answer this question, we first have to ask what is the definition of capital raise duration? Sadly, journalists don’t highlight this in their articles.


 

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Definition of Capital Raise Duration


I’ve worked in both public and private capital markets and I was shocked when I first started working in the startup capital raising space as everything moved so damn slow. However, over the years, I’ve learnt to accept and even enjoy the glacial pace as it means that no one needs to work until 4am. But is it possible that startups and VCs are able to raise capital at close to the same speed as the Australian government and ANZ Bank can?


The answer is almost definitely, no.


So, this implies that we must have different definitions of how to measure the duration of a capital raise.


I define capital raise duration in the early stage startup scene as the sum of the time it takes to build the relationships and reputation as well as to prepare for and execute the capital raise.


Why?


Because early-stage (pre-seed and seed) venture capital is mostly about investing in the founding team and it takes time for investors to build the conviction in the founders required for investment. Founders who turn up asking for capital without any prior relationship or reputation (or the ability to leverage other’s relationships and reputations) will almost always lose out to those with existing multi-year relationships and reputations.


 

The Cold Start Problem


An added complexity unique to the startup industry is the cold start problem.


The cold start problem in the startup context refers to the challenge of initiating and building relationships with investors, industry peers, and potential customers without having an established network or reputation. For new founders, this means they start from scratch, lacking the credibility and connections that could make capital raising easier. It’s particularly challenging for those from minority backgrounds, as they often face additional barriers to accessing the same networks and opportunities as their more privileged counterparts.


You can’t just turn up in industries like banking or engineering without experience or reputation and expect everyone to take you seriously. But, the startup industry entices inexperienced founders into quitting their jobs and putting it all on the line to start a startup which is what makes it so exciting but also so difficult.


 

Be Strategic, Not Transactional


This all means that founders need to be strategic about raising capital. Change from a transactional, reactive mindset to a relationship and reputational strategic mindset. Spend the months and years building relationships with investors to then raise capital in ‘a couple of weeks’ like in the movies and Startup Daily, Smart Company, Capital Brief or one of those other ones!


Conclusion


So the next time you see a capital raise announcement, ask yourself, how long the founders have been building the relationships and how many years’ experience they have in their domain to be able to execute this capital raise? The founders have probably known some of their key investors for several years, have had 10+ years’ experience in their industry, spent a good few months preparing for their capital raise and another good few months to years nurturing relationships with investors in the lead up to the raise to then ‘execute’ the capital raise plus a couple of weeks to a few months after to finish off the negotiations and paperwork required to close it all out and get the funds in the door.


 

Disclaimer: Excentricity Pty Ltd, trading as CapXcentric (ABN 42 679 978 959, AFS Representative No. 001311296) is a Corporate Authorised Representative of True Oak Investments Pty Ltd (ABN 81 002558 956, AFSL 238184). The information provided in this article is intended for companies and startups and is not directed towards investors. Any statements or representations are general information only and do not take into account your personal objectives, financial situation or needs. Readers are advised to have regard to their own circumstances and consider seeking specific advice from a professional adviser before making any business decisions. No representations are made as to the accuracy, completeness, or reliability of any information provided in this article. Readers use the information provided at their own risk.

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Aussie Startup Capital Raising

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Excentricity Pty Ltd, trading as CapXcentric (ABN 42 679 978 959, AFS Representative No. 001311296) is a Corporate Authorised Representative of True Oak Investments Pty Ltd (ABN 81 002558 956, AFSL 238184). Any information about the financial products and financial services available from or through CapXcentric on this website is general information only and does not take into account your personal objectives, financial situation or needs. Please have regard to your own circumstances and consider seeking specific advice from your professional advisers. 

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