Life as a startup founder can feel like you’re on an unstoppable treadmill. But no matter how many things build up on your to-do list, it’s important to keep your focus on how to get your company ready for fundraising. After all, raising money is a make or break for many startups. In this post, we’ll walk you through what you need to do and know to get ready for a funding round.
Evaluating when the time is right
The point at which you’re ready to go after funding will be different for every startup. Experienced founders can raise before they’ve built anything with just a compelling deck and a solid reputation, but those are the rare few. Most investors will want something more tangible and signs of growth before they part with their money.
That’s why you should take preparation for your funding round seriously. This isn’t a situation where ‘it doesn’t hurt’ if things don’t work out. A bad pitch leaves a bad taste for investors and could set you back when you’re raising investment in the future.
To show your company in the best light, you should be able to articulate your product or service in a compelling way that creates excitement, specify the problem it aims to solve and make sure you have a clear product roadmap to indicate how the investment will get you to the next stage. Not sure if you’re ready yet? Practise pitching with your friends and family and get some feedback first.
Figuring out how much to raise
Depending on who you ask, the answer to ‘how much should I raise’ will likely be ‘as much as you can’. If you need a precise figure, ideally you’d want to raise at least enough to last your company until the next funding round.
If you don’t know where to start, consider these steps to calculate your raise amount:
Identify and prioritise your milestones – this could be growing your team or building the website – anything which will progress your company.
Work out the time and resources required to achieve your milestones – establish some key dates and who or what needs to be involved. If you’re outsourcing, getting fee quotes ahead of time will be helpful.
Calculate your current burn rate – this is the pace at which you’re running through your existing capital. Once you’ve worked that out, multiply it by the amount of time you want the new investment to cover, then add the amount you need to achieve your milestones.
Getting ready in 6 steps
Now you know if it’s the right time to fundraise and the amount you want, it’s time to get into the detail of how to get ready for a funding round.
Sort your Cap Table – Investors want to see that you’re managing your equity to support the company’s growth. But they don’t want you to dump a pile of your company’s filings on them. A clean, easy-to-read Cap Table is essential to give investors clarity on what they’re getting into when they join your funding round. With a digital Cap Table, you can create snapshots of historical events such as incorporation and any fundraising you’ve done in the past. This way you won’t need to keep moving figures around on a spreadsheet to show how your share capital has updated. The platform will automatically do it for you! Find out more.
Get your house in order with the right essential legal docs – There’s a lot to do in between post-incorporation and your funding round to show investors that your company has a firm legal footing.
First, equity allocated to parties before the funding round should be properly documented. This includes founders, employees and contractors (consultants and advisors).
Secondly, assigning Intellectual Property (IP) to your company is critical. If IP ownerships aren’t assigned correctly, your employees might dispute them, and that could make your company a worrying prospect for investors. So it’s good to make things clear from the start by issuing IP assignments.
Prepare your pitch strategy – Getting the investor’s attention is easier when you have the right pieces of information, so you will want to prepare that ahead of time. Here are our recommendations:
An elevator pitch for potential investors about what your product is and what problem it solves. Use this time to showcase your vision, problem and solution.
A pitch deck to send to interested investors summarising: the company profile, product offering, the amount you want to raise, financials, and team. You can spice things up by including a demo and your elevator pitch video in your deck.
Prepare your answers to the questions investors are going to ask – You’ve got an investor (or investors) interested – now prepare for things to get technical. Investors will likely dive into issues relating to your core business structure. This is where getting your house in order before speaking to investors is important. Typical questions will cover things like IP, founder share vesting, current shareholding and option holders. The more transparent and relevant information you have for investors, the easier it will be for them to decide to invest.
Line up your investors before starting your funding round – Discussions with different investors often happen at the same time, so you might want to create a process to simplify how to get from first meetings to onboarding the investor.
Start by creating interest through different channels (social media, pitch decks, networking). Not sure where to start?
If you’re on LinkedIn reaching out to investors, do some research on the different profiles you see, then use that to personalise your message.
Once there is interest, identify whether there might be a go-to lead investor who can collectively negotiate terms on behalf of the other investors and take charge of the formalities of the investment, such as legal work and due diligence. This streamlines the process for everyone involved because you’ll only go back-and-forth with one party (the lead investor) rather than multiple. A high-profile lead investor can also act as an endorsement of your company to the smaller investors in your funding round.
Not sure who your investors are? We strongly recommend conducting your due diligence first before accepting investments from them.
When you do your funding round with SeedLegals, your investors are not locked in after you start – you can still add or remove investors at any point in the process.
Consider what key deal terms you are prepared to offer investors – Your key deal terms make up the Term Sheet that will guide your negotiations with investors and summarise the details of the investment. Investors will typically agree and sign the Term Sheet first before the remaining agreements are generated so it’s best to have an idea of what you’re prepared to offer from the outset. Founders who approach investors with their key deal terms in mind (or even have their Term Sheets already drafted) are more likely to be seen as serious. It can also give the impression you’re speaking with other investors and that can help drum up a healthy competitive spirit in your potential investors.
Fundraise faster with SeedLegals
We’ve covered what you need to do to get ready to get funding. Here’s something else to note: legal documentation can take months to manually draft, finalise and execute.
Here at SeedLegals, we can save you weeks – or even months – of admin-heavy, expensive work. Our automated data-driven platform builds local law-compliant docs in just a few clicks, so you can focus on achieving your company’s milestones and negotiating your deal terms. If you get stuck at any point along the way, the step-by-step wizard is there to help or you can reach out to our team of experts anytime to get unlimited support.
If you have any questions, or still not sure on the best way to go, we’re here to help. Get in touch with our team who will guide you and help you get started.
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