Raising money through investment is HARD. Given the volume of founders investors meet along with your investment proposition, it’s a no-brainer that you first need to prepare.
A targeted and well-thought-through approach to raising investment will ensure you’ve selected the right investment strategy for your business, are raising from the right kind of investors and ultimately lead to a more efficient raise allowing you to focus on what really matters; your longer term growth.
Here are the key areas you should focus on before heading out to raise.
Business Readiness
Business readiness refers to the degree to which a business, including processes, employees and stakeholders, are prepared for organisational change. Here are a few considerations for founders:
Revenue - Does your business meet the revenue threshold expected by VCs at Series A? Is your forecasting up to standard?
Growth Plan - Do you have a solid growth plan? Does it demonstrate how your business will achieve its goals off the back of any potential investment?
Maturity - Has your company matured to the required level? Are you still a founder-led business or have you transitioned away?
Investor Readiness
Investor Readiness refers to the understanding of what investors want to know about the investment opportunity so they can decide whether or not to invest. Here are some of the things you’ll need to be investor ready:
Exec Summary - Do you have a two-page handout that provides a clear and concise summary of your company that will excite potential investors?
Financials - Are you financials investor friendly? Potential investors will want to see the impact of different scenarios so ensure your forecast can be stress tested.
Data Room - Do you have your data room in order? Your data room should be prepared as early in the process is possible and will help create competitive tension for your business.
Business Readiness
Business readiness refers to the degree to which a business, including processes, employees and stakeholders, are prepared for organisational change. Here are a few considerations for founders…
Revenue - Does your business meet the revenue threshold expected by VCs at Series A? Is your forecasting up to standard?
Growth Plan - Do you have a solid growth plan? Does it demonstrate how your business will achieve its goals off the back of any potential investment?
Maturity - Has your company matured to the required level? Are you still a founder-led business or have you transitioned away?
Investor Readiness
Investor Readiness refers to the understanding of what investors want to know about the investment opportunity so they can decide whether or not to invest. Here are some of the things you’ll need to be investor ready…
Exec Summary - Do you have a two-page handout that provides a clear and concise summary of your company that will excite potential investors?
Financials - Are your financials investor friendly? Potential investors will want to see the impact of different scenarios so ensure your forecast can be stress tested.
Data Room - Do you have your data room in order? Your data room should be prepared as early in the process is possible and will help create competitive tension for your business.
Investor Proposition
Unsurprisingly your investor proposition will be a key area prospective VCs will be very much focused on. How much are you raising, what for, what valuation, what might the ROI be and why. Here are a few key internal questions to ask before tackling the VC questions…
How did you get to your optimal funding number? Have you outlined a clear use of funds? At Series A there needs to be an increased focus on commercialisation.
How did you get to your valuation? Your valuation should be fact based, not opinion based. Do you have the right proof points to back up your valuation? Comparable exits in your industry is the gold dust you need to source!
This is the area I see that gets forgotten the most… What is your exit strategy? Most VCs won’t see their ROI until you exit so having a strategy as to who is likely to buy you and why is crucial. Even if its wrong (highly likely!), its still shows your thinking and end goals are aligned.
Investor Outreach
Once you’ve nailed your investor proposition, investor outreach is your focus. I’ve seen this go wrong on many occasions, here are a few of the watch outs…
Are you talking to the right investor by stage? What are their ROI expectations? Ensuring you’re speaking to the right VC at the right time is key in ensuring you use your time efficiently.
Similarly, does the VC you’re talking to have an interest in, and importantly an interest in investing in, your sector? What is their experience in the sector and is this a good thing, e.g. they have domain expertise, or a bad thing, potential competition within their existing portfolio.
What role will that investor play? What value-add are you looking for? Are you looking for an active investor or a passive one?
Differentiation
If you can’t demonstrate your potential to become a category leader, who’s to say your competitor won’t beat you to either dominating the market opportunity, or attracting the premium exit offers. Conversely being number one in your category (even if it requires you focussing on a niche) will broaden your investment opportunities and later, exit horizons.
Client Validation
Move your founder opinion of where the market is going into the customer's voice. By doing this you’ve transitioned from a founder identified problem-solution to a customer identified and endorsed problem-solution. Much more attractive and less risky to your VC audience.
Scale Potential
It's vital that you phase your scale activity. Double down on the things you know and can evidence and focus on delivering that. New launches can come with time. Taking this approach and phasing your activity will help de-risk your business for a VC.
Overstatement
Aka hyperbole...aka bullsh*t. Overstatement doesn’t always come from a bad place, founders are optimistic people! It’s an understandable characteristic but one that can knock a VC’s confidence if you aren’t able to evidence claims.
Team Issues
Understand your team. The skills you have and the ones you lack. Be transparent about it, how you plan to resource the gaps. Don’t assume “it will be easy to resource once we have funding”. Also tune in to your team’s buy in! A lack of team buy in is a huge red flag for a VC…
Process Optics
How do you look during the fundraising process? VCs understand the process and its stages much better than most founders. Be aware of giving very bespoke answers and / or slow responses. Both of these things tell your VC that potentially there’s a lack of competence, a lack of competition for the deal and a lack of urgency and pace.
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