Preparing to raise capital can be an exciting and stressful time. It means your company is experiencing growth and that you’re ready to take things to the next level. The best way to prepare to raise capital is to ensure you have the documents and information necessary to present to potential investors during the pitch and due diligence processes.
It’s best to arm yourself with all the information necessary to answer any potential questions a potential investor may have as well as to have the important documents on hand for the initial preparation, pitch, and investigatory stages.
Investors want to see traction. They want to know that the organization they’re investing in knows how to succeed. Make sure you have proof that someone will pay for your product or service (and not just friends or family). You want to make sure your current customers are a broad segment and that the sales have been intentional. Investors will also look for a steady stream of customers, an increase in the number of customers, and low churn.
No one wants to hand money to someone who doesn’t know exactly what they’re going to do with it. Even less so if the investor can’t directly see what they’re going to get out of it. While there’s no possible way for you to accurately predict the future, you need to have:
A potential investor is going to ask you a lot of difficult questions and will expect you to have answers to those questions. Have clean books that your potential investor can view, and make sure you have clear working knowledge of those books. Be prepared to answer tough financial questions or be armed with a financial expert (such as a high-level controller or CFO) who can help you answer those questions.
When you’re preparing to raise capital, part of your preparation will include creating a pitch deck. Resist the urge to over-design, add too much irrelevant imagery, or any other graphics that will detract from the actual story. Investors see hundreds if not thousands of pitch decks. They’re not judging you based on your design prowess; they’re judging your story and proof of concept. Cut out anything extraneous. Focus on a compelling narrative and strong metrics and make sure your pitch deck looks professional, and you’re on the right track.
Your potential investor will want to know about your top clients as well as strategic partnerships. This shows them the caliber of people you’ve been able to attract and sets the tone for the type of customers and relationships you will be able to acquire moving forward.
Make sure you are prepared with information about any pending lawsuits against your organization or initiated by your organization, or any potential upcoming litigation.
When pursuing capital, be prepared with information about environmental, product, or employee safety liabilities as well as any issues in the past or present.
Make sure you are prepared with documentation for any intellectual property such as:
Also include any information about sales or transactions regarding that property.
Make sure you have prepared all your corporate records and documentations including:
During due diligence, potential investors will likely want to see information regarding:
Many of the tough questions a potential investor may ask pertain to potential risks, including company risk, industry risk, and market risks. Come into the fundraising process knowing your risks and knowing how to mitigate those risks.
Prepare to present information about your marketing, sales, and distribution. Know:
Make sure you can answer any questions about (or prepare information for) the marketing, sales, and distribution strategies as well as what actual implementation has and will look like.
Know what your target customer is and have relevant metrics for:
A potential investor will want to see the internal structure of your company, including:
Before investing in an organization, a potential investor will want details about who owns what and any potential dilutive outcomes. Prepare:
Investors want to know how much you’re spending and how quickly you’re spending it. This is used as a frame of reference for how responsibly you will handle their investment and whether or not your business in dire straits (which would be a red flag indicator).
Don’t be blindsided by tough questions or potential objections. Play devil’s advocate and try to predict the hard questions you may run into. Be prepared with information, answers, or an eloquent way to say that you have a way to find the information the investor needs. Don’t be caught with a blank stare and an “Uhhhh…”
When you’re preparing to raise capital, you’ll be at a significant disadvantage if you don’t have a strong network of contacts. These contacts can not only give you a good starting point for seeking potential investors, they can also help you get in the door and validate you as a founder and business person. Don’t underestimate the power of personal connections. Find some way to tie yourself to someone who is connected to a decision-maker and you’ll be stronger out of the gate than a similar company with no contacts.
Next Read…
https://preferredcfo.com/12-things-venture-capitalists-look-for/
About the Author
Partner in Residence
Troy Skabelund has over 20 years experience as a CFO and Systems Expert for organizations of all sizes and industries, including 12 years at the Walt Disney Company. He specializes in analyzing and designing financial systems with experience in both proprietary and 3rd party solutions.
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