As a startup founder about to raise capital, it’s likely that your focus is on your product (metrics, projections, etc). This may include how to pitch your story and your team in a way that will inspire investors to buy into your dream.
With an ever increasing number of new startups, investor pools are becoming smaller and smaller. The competition is getting fiercer. Founders need to get smarter in all areas of their business to win. However, raising capital may present more challenges than you think.
It can be a big distraction for you and your team – it may also take a lot longer than you imagine. Having an understanding of what investors might ask for could be crucial to closing the round. A small amount of preparation may help to get the money into your bank account before your current runway burns out.
Six key things to consider:
1. Legislation – the government has strict rulings related to fundraising. These vary depending on the type of incorporation you have and of course your location. In Australia, the Australian Securities & Investments Commission (ASIC) governs legislation. They provide a clear outline of what you need to be aware of as a director of an Australian company.
2. Cap table and valuations – understand the difference between pre- and post-money valuations. Consider scenarios of how an investment might impact yourself and any other current shareholders. If you’re in Australia, make sure that your cap table matches the shares issued on your companies ASIC records. Most savvy investors are likely to check this.
3. Due diligence – depending on the amount of money you plan to raise and from whom, it is likely that you may encounter some kind of due diligence. This might be as simple as providing historical financial statements. Yet it may be more complex and need in-depth legal and financial due diligence. Without preparation this could end up being very costly and time consuming. If you’re not able to provide what is needed an investor may choose to walk away.
4. Documentation for investors – an understanding of legislation that applies to your company should help to support the process. Having a core pack of documents prepared can help to provide confidence for potential investors. It may also assist them to make an investment in the timeframe needed.
5. Managing stress – preparing for and pitching your business to investors can lead to increased stress levels. You may find yourself working longer hours. To keep things under control you may also find you slip into micro-manager mode. Looking after yourself and your team through this time is something you might want to pay attention to. Remember stress has a tendency to spread like the plague if it’s not kept under control.
6. Timeline – plan your calendar. If you have reviewed your runway accurately, you know when you need the money to hit your bank account. This will tell you how long you have to prepare, pitch and close.
If you think you need to know more, consider taking the time to read up as much as you can in advance. The more prepared you are for what might lie ahead the better. Keep it simple. For example, there is no need to go deep into due diligence until someone asks for it. So long as you understand what due diligence is and know that your business records are in good shape that is fine for now.
Take the time now to understand what you might need help with. Then find out who can help you with what, when the time is right. The last thing you want is to have found an investor who is keen to review your shareholders agreement and you don’t have it in place.
Related Tips/Tools/Resources:
● Check out Pollenizer’s universal pitch deck for a simple template to base your pitch deck on.
● Forecast your cap table for likely scenarios. Read this for a simple way to look at pre/post money scenarios.
● Have a good understanding of your runway, read my previous article to find out more.
● For Australian based startups, find out more about fundraising on the ASIC website. For anyone else around the globe check your local government websites.
● Check out Lawpath for easy to use legal document and solutions.
Clare Hallam is a Startup Operations Specialist. Follow Clare on Twitter.
Clare is the chief operating officer at X-Lab Ventures, a founder and startup coach at DiligentlyMe, a co-founder of Upperstory and a director and portfolio manager at Pollenizer.
