Taking your business to the next level is hard. We know, we’ve spent a lot of time working with startups to help them raise capital to drive growth. As you’re preparing for investment, a million questions jump to mind.
Is now the right time to ask for investment?
What options do I have?
How much should I ask for?
Am I ready?
We’re taking the guesswork out of it with a thorough checklist that walks you through everything you’ll need to secure funding.
Let’s get started.
1. The investment proposition: Why should anyone invest in you?
Just having a good idea won’t do. You’ll need sensible milestones, a strong value proposition and a thorough knowledge of your investors to secure that first meeting.
a. Do you know who you’re pitching to?
There are a million options out there, so you should know whether venture capitalists, angels, or crowdfunding are the right fit. Each provides a different level of involvement in the business, and have different expectations. Some will only cater to certain sectors or have similar products in their portfolios already.
Start off with a list of about 30 investors, looking out for those with a proven track record in your industry, and get their contact information. Some will receive more than 250 proposals a month, so make that first email count.
b. What is your value proposition?
It all starts with an elevator pitch. You should be able to describe what your company does in a simple sentence, as well as what value it brings to the market.
c. What problem are you solving?
You need to clearly convey the actual pain point that you’re addressing and how that problem affects your potential customer base.
d. How well do you know your target market?
Investors will want to know how big the market is, and that you have a realistic plan to conquer a segment of that market.
e. Have you prepared a compelling teaser proposal for potential investors?
That initial email is an opportunity to let investors have a brief overview of your investment opportunity. Outline who you are, the problem your business solves, and provide information about the market, and what you need funding for. Be sure to keep the focus on the investment opportunity, not the business.
2. The pitch deck
Once you’ve made it through to the first meeting, you need to wow them with your presentation. Investors are fuelled by the fear of missing out on the next unicorn, but they also fear losing money. To get them over the hump, make sure your numbers are on point.
While your pitch presentation should reiterate your vision, value proposition, and opportunity, focus on providing data-centric information on your business and revenue streams.
a. Have you prepared a revenue model?
Go over your business plan and how you intend to turn a profit. Identify your potential clients and revenue streams, as well as where you fit in the competitive landscape. Break down revenue projections for at least the next 12 months, but preferably 3 years.
b. Can you provide updated financial projections?
Investors will conduct due diligence, and expect your pitch deck to include a summary of your financials. Be prepared to go through your cash needs.
c. Can you demonstrate traction?
Early-stage companies will not always be able to show a lot of metrics proving adoption, but any sales or early adopter data will help. It’s paramount to prove that you have a keen understanding of both engagement and operational metrics, and how they validate your concept.
d. Have you put together a marketing strategy?
Make sure that you can churn out a clear funnel and/or go-to-market strategy, whatever the case may be. Know your customer acquisition costs and lifetime values.
e. What does your product roadmap look like?
Investors need to know that you have a plan and won’t squander their funds. Outline the steps you’ve taken so far, your major goals and the milestones you’re setting up to hit in the next 18 months, down to features and costs.
f. Does your presentation get to the point?
All your pitch deck needs is a small number of slides, each sending one message. They should focus on your product, market, business model, traction, financial projections, team, competitors, exit strategy and above all your investment proposition. When in doubt, use Guy Kawasaki’s 10/20/30 rule: Keep it under 10 slides, talk for no more than 20 minutes, and use a font size no bigger than 30.
3. Justifiable valuation
The value you put on your company will determine how many shares you’re letting go of, so it should be defensible.
a. Do you have a valuation?
Putting your valuation together can be daunting. You’re dealing with current annualised revenues, cash investments, scalability, and monthly profitability, among others. Don’t worry, we’ve created a guide and a valuation scorecard to get you going.
b. Is it realistic?
Being able to defend your valuation is crucial, so make sure you have a range that fits your expectations and can back it up with industry-specific benchmarks. Research companies similar to yours in terms of stage and sector to benchmark your valuation.
c. Have you thought about the future?
If this is your first raise, rest assured that it will not be your last. If your valuation is high now, it will affect future valuations and therefore your ability to raise capital in series A and beyond.
d. Have you factored in the broader market context?
Economic uncertainty has become a norm for the UK since 2016; the impact of Covid-19 has exacerbated that. Investors are being ultra cautious in this environment, so take that into account when setting a valuation.
Proven management and a diverse team are critical to attaining funding. Investors want to know your plans are backed by a team that can deliver. At the end of the day, people invest in people.
a. What is your team’s skill set?
The more diverse your team’s skills, the better. You want to create a team made up of people with expertise in marketing & sales, finance, and product development.
b. Does the management team have a proven track record?
The people behind the scenes should be motivated and committed to the company full-time. However passionate they are, though, investors favour teams that have grown/exited a business before.
5. Exit Strategy
How will investors make their money back? Will it be through a trade sale or an IPO? Make sure you have credible answers to these questions.
a. Have you considered your exit strategy?
Look at similar company exits, weigh the benefits of IPO versus sale, and be clear on what your eventual aim is.
b. Are the founders aligned on the exit strategy?
Investors will want to know if there are any major disagreements amongst founders, and alignment on an exit strategy is as major as it gets. Make sure everyone is on the same page before investor meetings.
Securing funding is not for the faint of heart, and one mistake could make or break you.
In fact, studies show that most pitches get thrown out because of market issues, management profiles, and, last but not least, financials.
We know working with a professional to get investment ready is vital. We can help you write proposals, set a valuation, and find the best investors for your needs.