
The Overall Financing Process
Any financing process — at any stage and of any type — is complex and time-consuming, and management teams should allow sufficient time to work through the process as shown in the exhibit.
Much of the preparation for a successful financing is the year or two of superior operational and financial results prior to attempting to access additional capital (see Preparing for a Growth Equity Financing for more tips on how to properly prepare [link to Preparing for a Growth Equity Financing]. In turn, the fact pattern of continued revenue and earnings growth over time should be reflected in clear reporting and analysis in a professional and appropriate format for institutional investors, ideally in accordance with full GAAP (Generally Accepted Accounting Principles) accrual accounting, and even better if your financial reports have been reviewed or audited by a reputable CPA firm. Investors want to support and fund successful businesses, and there will usually be an ample supply of funding for companies that launch the financing process after thorough preparation and a successful track record.
The Typical Financing Timeline
The financing process typically consists of several steps and will usually take from three to nine months or longer as shown in the exhibit.
The factors that impact the timing include:
1) the proper targeting of the financial sponsor to ensure a good fit with your company;
2) the ability of the company to provide timely and credible information during the process; and
3) the time it takes to negotiate the definitive documents, which include dozens of assorted documents to support the financing (see Negotiating a Growth Equity Placement for more on the typical agreements and typical terms of an equity financing)
Investor Pipeline
Management teams should approach the financing process much like any sales process, after all, you are selling stock in your company and you will want to go through the similar steps of targeting, qualifying, and closing investors in much the same way you would any customer. Similar to a sales process, you will need to fill your pipeline with a sufficient number of prospective investors and work them through the various stages shown in the graphic above in order to have a successful closing on your desired financing. As you work your way through the process, you do not want to be “single-threaded” with only one potential investor because you will lose negotiating leverage. Ideally, you end up with several investors all interested in your company at the Term Sheet phase to increase the “competitive tension” in order to get the best possible investor fit and the best possible financing terms.

“Any financing process is complex and time-consuming, and management teams should allow sufficient time to work through the process”
Legal Steps
There are two primary legal steps in a typical financing: 1) negotiating the Term Sheet (also called a Letter of Intent), which is a high-level agreement to work exclusively with one investor to finalize the deal and speaks at a high-level to the key terms of the financing. Once a Term Sheet is signed, then additional due diligence is performed, which is then followed by the second legal step of 2) Definitive Documents, which are all the documents required to close on the transaction. See “Negotiating a Growth Equity Placement” [link to Negotiating a Growth Equity Placement] for more details on the legal terms that will be on the Term Sheet as well as spelled out in great detail in the Definitive Documents.
The Pace of Diligence
Investors want to reach a quick “go” or “no go” decision on a prospective financing, but are often delayed due to a lack of responsiveness, or the lack of availability of the necessary information. Therefore, proper preparation prior to initiating the financing process will help a company move at the same pace during the diligence process as the potential investor.

Importance of a Deal Team
Advisors and intermediaries can play a valuable role in preparing a company for a financing and in shepherding the company management through the process (see Preparing for a Growth Equity Financing for more tips on how to assemble your equity financing “deal team” [link to Preparing for a Growth Equity Financing]. Consult with your investment banker and general counsel for more information on how to properly prepare for, and manage, an equity financing.
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