Fundraising is not for the faint of heart. It involves a steep learning curve, and requires resilience and a lot of work. Unfortunately, it will be a significant distraction to your business and personal life and could take around six months, depending on your level of investor readiness.
To get through fundraising successfully, you must be mentally and administratively prepared.
How do you mentally prepare?
Fundraising can take a mental and emotional toll. Not only will you be burning the candle at both ends, but you will also be emotionally tested if you receive multiple knockbacks from investors. You will need a strong support network around you.
Having a co-founder might help ease some of the pressure as one of you can focus on the fundraising process while the other continues running the business.
You also need to mentally prepare for ‘selling’ a part of your business and giving up some control. You (and any co-founder) will no longer be the sole decision-maker. While investment means diluting your equity stake, remember you are receiving a cash injection to take advantage of a business opportunity or to help grow or scale your business. So, you must decide whether you want 100% of an ant or 60% of an elephant (metaphorically speaking).
Last but not least, ensure you know what you want from a potential investor. For example, money, knowledge or skills, contacts, channels to market etc. You also need to be clear on whether you want the investor to be a financial investor only, whether you want them to be operationally involved (and to what degree), have a board seat, etc. These decisions will impact the type of investment (and investor) most suits your business.
How else should you prepare?
Investor readiness requires a lot of research, preparation and rehearsing for investor meetings and presentations. As startups usually have one shot with investors, you need to do your homework before engaging with them. This includes understanding:
- what investors want to know about the investment opportunity to make a decision on the investment, and
- how to position the investment opportunity and present it from the investor’s point of view to increase your chances of attracting investors.
The key to your preparation, and level of investor readiness, will depend on several elements including those outlined below.
- Business and strategic planning. You should ensure you have a documented and solid business plan which shows you understand the competitive landscape, your target market and its size, the business operations and resources required to achieve the strategic objectives, the key strategic strengths and weaknesses of the business etc.
- Financial acumen. This includes having a robust financial model which shows you understand the financial drivers of the business, how you will spend the investment and how long it will last, the investor’s likely return and when, the risks to this return and how they will be managed etc. You should know your numbers well and ensure your financial information is up to date and accurate and projected financials are based on well-founded assumptions and realistic expectations.
- Legal structure and documentation. It is important that you have strong legal foundations. This will give investors the confidence that you are conducting your startup properly. This includes for example having the right legal structure through which to conduct your business, a shareholders agreement, ownership in or the rights to use all intellectual property, contracts with employees or contractors, an employee share option plan, terms and conditions with clients or customers, supplier terms etc. You should also ensure that your cap table is up to date.
- The team. A startup is only as strong as the people behind it. Therefore, it is critical that you have the right people in the right roles and that their roles, responsibilities, and key performance measures are clearly defined and documented. Investors will want information about you and your co-founders, your previous experience and that the team are committed to the business.
- Business processes. Every business needs consistent processes to ensure the operational performance of its business. You should document your business and organisational structures, operational processes, and policies. This will help you demonstrate to investors that your business is well-run.
Investor meetings and presentations
The key to investor meetings and presentations is being investor ready. Being confident about your investor readiness will boost not only your confidence but also the investor’s confidence in your startup and your investment case.
This confidence will also make pitching to investors easier as what you pitch is investor ready, and you will have answers to any investor questions.
Conclusion
In many ways, the features of investor readiness are like those required to run a successful business. Even a business that is not planning to raise capital from investors can benefit from embracing and implementing some of the key principles of investor readiness.
Use our free self-assessment checklist to check your startup’s overall investor readiness.
As a Startup Toolkit member, you will have access to the tools and resources you need to take actionable steps to get yourself investor ready and also run a better business through each stage of your company. Contact us for more details.
Resources and related topics:
- Complete our FREE ‘Are you investor ready?’ questionnaire to find out your startup’s overall investor readiness. We will also provide you with a free checklist to help get you investor ready.
- Blog: Are you prepared for due diligence?
- Investor Readiness Masterclass. This course is designed to get you investor ready and prepared for due diligence quickly. Contact us for more details.
- Need more help? Contact us at support@startuptoolkit.com.au.
