Get Fundraise Ready: Follow these Steps
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By now, you likely know fundraising is not an activity, it is a mammoth process - one you should timely foresee and adequately plan for. The entire process, right from initiation to final closure can take you anywhere between 4-6 months. And with the exotic deal structures being drawn out today and the involvement of agencies for diligence and legal matters, make sure to keep a couple of months buffer. So be mindful of current available cash in the bank and get started early because being on the brink of running out will only limit your ability to negotiate your ask.
Start with speaking to more experienced entrepreneurs, investors, and advisors to get their two cents on where to start and what to watch out for. Despite venture capital financing being your preferred choice, evaluate all available financing options - both equity and debt - and the feasibility of both.
- Know Why You Need External Financing - Beside factors such as the total amount to be raised, degree of urgency of funds, start with defining specific use of the cash and associated risks. Investors are going to ask you these questions and should be convinced with why you need the cash and why you wouldn’t bring it on your own (assuming early financing stages). Often, the reason why investors expect steep returns are to be incentivized for taking on the associated risk - hence, you would more often see investors willing to invest in hiring, tech upgrade, and customer acquisition than on financing working capital.
- Start Organizing Company Information - Investors and advisors are going to ask for details to take a deep dive and evaluate your business on multiple parameters. Be sure you are ready with an organized set of information - key metrics, detailed MIS, business plan, business projections, etc. Set your budgets and projections for every quarter and have a mechanism to track and measure progress made against the budgets/projections. If something does not look right, be prepared to answer uncomfortable questions with honest yet detailed responses.
- Compliance is a no Brainer - Get all your regulatory filings in place and adhere to legal guidelines. If you are not sure, hire a consultant to diligence your filings, trademarks, patents, copyrights, and get your code reviewed. Investors are going to diligence these matters, so do it beforehand and save your time.
- Quality Over Quantity, Always - Start with defining what you’re looking for in investors - is its expertise, access to markets, access to the network or just cash? Put together a list (not a laundry list) of specific investors you would initially want to test the waters with and a list of investors you want to more specifically go after. Deliberate your targets based on considerations ranging from investment size, theme, focus areas, to portfolio and expertise. Always try to avoid an investor with a conflicting investment in their portfolio.
- Lay Down Facts They are - Resist the urge to sugarcoat your story. Be honest to investors and advisors about the backdrop, your journey, current status, and future plans. With any gaps in your story, you will find it difficult to hold their attention for too long. Institutional investors deliberate and evaluate investment opportunities in depth and leave no stone unturned. Also, the community of investors and advisors is fairly connected, so the word is going to travel. And fast.
- Don’t Waste Too Much Time Structuring - To up your valuation game by a few hundred thousand dollars, don’t waste too much the time or complicate the deal structure. There is only so much time an early stage venture has for fundraising, you don’t want to waste time looking to bring on more investors or quickly raise another round at a higher valuation in a time-bound manner.
Investors are ultimately your partners in business. Pick up the phone and keep them informed about the good, bad and ugly news. Your investors would rather have the bad news be delivered by you.
After spending a reasonable number of months in your fundraising process and getting feedback from investors, if the probability of getting an investment seems bleak, you might want to take a step back and re-evaluate your options. While counter-intuitive, be open to considering a strategic partner if one comes along. Although, it can challenge your ability to raise follow-on funding rounds, at this point you might want to take another look at what you set out to build, where you are in the process, and how much further you need to go to achieve your mission.