Boost Your Chances of Fundraising Success With These 5 Preparation Tips
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Funding is the fuel startup engines need. Getting funded the right amount at the right time by the right investors on the right terms is a key task for any CEO.
To date, Kaltura has raised more than $100 million in equity and debt, and we’ve done it all without the aid of any investment bank or broker. How? Through a seed/angel round, five venture capital rounds and three term loans.
Preparing to fundraise is almost as important as the fundraising itself. Creating a solid foundation for raising funds will help a company to be more organized and have a better chance of getting that much-needed capital. Here are five tips for a company preparing to fundraise:
1. Always be raising.
Just like companies need to always be on the lookout for good talent, they should also always maintain and grow their relationship with the investor community. Fundraising takes time, and investors want to see progress compared to earlier plans and promises.
Reach out before the money is needed to start forming relationships with as many investors as possible, and routinely update prospective investors on progress so they are part of the journey.
2. Have a reserve.
The first rule about cash is never to run out. Just like planes need to always leave enough fuel for an alternate airport, companies should ideally close on new funding while they still have money for at least another six months of normal operations.
Failure to do so not only puts the company at risk, but also reduces the chance of actually closing on an investment (desperate companies are far less appealing). It also dramatically worsens investment terms and can cause the CEO to abandon other important tasks.
While seed rounds and late-stage funding rounds are often quicker, it is not atypical for A through E rounds of investing to take six to 12 months to execute -- even, and sometimes especially, if they are successful. All the more reason to plan ahead and "always be raising."
3. Maintain a strong relationship with existing investors.
Maintaining a strong relationship with existing investors is paramount for the success of the next funding round, increasing the probability of attracting new investors under good terms. Supportive existing investors are also more likely to fund the entire follow-on round or, if need be, provide a bridge loan in favorable terms.
Clearly, business success breeds support, but there are behaviors that significantly contribute to it as well, including transparency, accountability, attention to detail and analytical thinking. At Kaltura, we recommend treating regular board meetings as mockup funding rounds by preparing detailed and transparent "plans vs. actuals" and detailed key-performance-indicator analysis.
This not only boosts existing shareholder trust and support, but also shortens preparation time for new rounds, enables new investors to better assess historical results and leads to less of a need for future data points for validation.
4. Due diligence is for everyone.
Due diligence isn’t just for investors -- it’s for the company, as well. Organizations should continuously define clear company and department-level goals and track their attainment, as well as set clear and measurable KPIs and assess them regularly, benchmarking them with industry standards.
Consider also instilling monthly financial reporting, maintaining a repository of all contracts of customers, employees, and suppliers, and keeping a formal record of all business commitments, contingent liabilities, IP restrictions, etc.
Maintaining due diligence will accelerate funding rounds, but even more important, improve ongoing business results.
5. Have the right lawyers.
No matter how experienced, smart and savvy a company is, it will need to be armed with good and reliable lawyers. Hiring them well in advance and utilizing them for other corporate needs prior to the round will enable an organization to assess ahead of time their knowledge, attention to detail, dedication and general work ethics.
Doing so will not only ensure that the company is well represented, but also enable the legal team to know the company well enough to be better advisors and sounding boards throughout due diligence and negotiations.
There’s no golden formula to guarantee the success of fundraising, but utilizing these tips can help a company get started.
What are other tips for companies preparing to fundraise?