Raising capital for your company is likely to be one of the most daunting, but ultimately rewarding processes any company will go through. There is a unique aspect to each capital raise and in reality companies won’t move through these strategies in exactly this order, as many will be at different stages of the raising capital process.
For the majority of businesses a capital raise will take longer than anticipated. If you are raising capital then give yourself at least six months from when you absolutely need funding and be prepared for your general business cadence to slow down as your days become filled with tasks relating to the raise.
It is also vitally important that companies are clear around the intentions of the raise itself including answering:
How much do you aim to raise?
What do you plan to do with these funds?
What is the current valuation of your company, and what equity are you preparing to sell?
What sort of investors are you looking for and will you offer special terms to secure them?
Cutting corners on preparation for a capital raise can lead to major challenges, extra cost and a loss in investor confidence . When talking to investors make sure:
Your current share registry is correct and updated
All company documentation is correct and accessible
You have considering the implications of a share split
All existing shareholders are aware of next steps in the raise and relevant board approvals have been sought and given
You have briefed your relevant business advisors such as lawyers and accountants
Before you begin real investor communications you will need some top level information explaining your company and the raise. This can be a tricky ‘chicken and egg’ process as you often need to have some investor conversations to be able to form good collateral. Our suggestion is to create a basic Investment Summary that may contain some indications around the raise parameters. There are numerous templates available online as a starting point or you can seek the assistance of professionals to help craft this document.
There is no right or wrong way to form this list but we always suggest using your personal networks to try to create some ‘softer’ first meetings as you will be feeling your way into this process. If those you are meeting trust you personally it will make for an easier discussion about the investment opportunity. But making a list of everyone you wish to chat too is also a great step. Typical groups will include:
High Net Worth individuals
Corporate Investment arms
Crowd funding or equity marketplace platforms
Friends and family
A good suggestion to start with is to look at some companies you admire and see who their investors are. That may help you shape who to talk to first.
Eventually you just need to start contacting investors and having chats. It is very important to note that for the majority of companies this is a numbers game and rejection is not personal. One great bit of feedback is to try and understand as quickly as possible if a prospect is a potential lead investor. Many investors will lean on the vetting provided by this individual/investment group, so you need to focus your time to ensure that momentum is conserved.
Normally your lead investor will be the ‘deal setter’ for the final terms of your raise. Once you have found and agreed to terms with this investor you will need to create or confirm a number of documents that may exist in draft form at this point. Documents will include:
A more detailed and official Investment Memorandum
Term Sheet for your lead investor
For most companies it will be necessary to engage with a lawyer to help create these documents.
Once you have the terms of your raise confirmed, and normally a lead investor secured, you will need to go out to all remaining prospects to complete the raise. Converting investors to move from being ‘keen’ to signing paperwork is the hardest part of the process and will often require some time deadlines to ensure interest is genuine. Once again, this process is normally a numbers game so don’t take a no as a personal rejection of your company.
A raise is never complete until money is in the bank and shares have been issued. Ensure you set realistic and clear expectations with all investors about the time frames for these processes. Double check all your balances are correct in your cap table or share registry before inviting investors to view their parcels.
Engaging with your investors should never end, but this should not feel like a chore either. When used well, your investors can be a huge and influential part of the growth of your company. Ensure that you create some regular touch points to update them on progress with the company. Where sensible, invite them to use or trial your product, and encourage them to refer potential clients.
While this list may seem like a lot of work, by using these strategies you have a better chance of making it through the capital raising process with a successful outcome. Never hesitate to reach out to other companies or founders who have done this before as they will almost always be willing to help.
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DISCLAIMER: This article is for informational purposes only, and contains general information only. Orchestra is not, by means of this information, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This information is not intended as a recommendation, offer or solicitation for the purchase or sale of any options or shares.