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The best questions to ask yourself before raising a round

Startups scale and grow in different ways. There’s no one-size-fits-all solution but there are some key elements that apply across the board and will help when preparing to fundraise. Sifting through our expert knowledge base, we’ve compiled some top tips to guide you through the pre-fundraising process.

What’s on my cap table?  

First things first, if you’re raising funds for equity, it’s worth looking at the state of your company ownership. Who is on your cap table? Is your data organised and secure? And, importantly, when fundraising, can you provide an investor with the right information in a timely manner? 

As your company grows, so does your cap table. The data becomes increasingly complex to handle and there’s margin for human error – especially if you’re working from a spreadsheet. Experts advise that you take action at this stage in order to avoid a cap table disaster later down the line.

This is where cap table software, like Capdesk, really shines: digitising equity management allows you to quickly find and communicate company information. It also shows investors your best traits: that you’re serious, organised and transparent. 

“Don’t wait until you’re going through financing or acquisition to tidy up your cap table because you really won’t have the time for it,” advises Mike Yang, a Partner in Orrick’s Compensations and Benefits Group. 

By acting early, you can get your company data in order and avoid spending time and resources on resolving mistakes further down the line – time you likely won’t have while fundraising. 

How much money is too much money?

The strategy behind a fundraise is just as important as the money that hits the bank, and different companies require varying types and amounts of financing. A good place to start is figuring out your KPIs and targets. From there, you can work out how much money to raise. 

Is your goal to become a unicorn in one to two years or are you looking for sustained growth? Are you seeking venture capital, angel investment or money raised via a crowdfunding campaign? There’s a range of options, all with different outcomes. 

“If you take too little capital, you’re going to be hampered for a long time and continually trying to fundraise. This will leave you undercapitalised. Take too much and you risk diluting your position,” advises Ed Bardos, COO of Venture Founders

So how do you figure out how much to raise? Two words: round modelling. The process takes your existing cap table data and runs it through several different investment scenarios. You’ll see the effect different fundraising amounts would have on your cap table and company ownership, and help justify your decision.

Am I ready to face investors?

In the view of most fundraising experts, there are two ways to win over investors. Firstly, investors love data and will want you to provide a sufficient amount of company information before going anywhere near a term sheet. Requests from investors are not likely to be for unusual or niche data which means you can get organised ahead of time. 

“Investors ask for relatively standard stuff so you can get organised ahead of time. Have some sort of data room, know where the figures live. Capdesk is a brilliant solution for your cap table and stops uncomfortable conversations later,” Ed Bardos recommends.

What are the benefits? Due diligence processes run more smoothly and you’ll spend far less time exchanging information. All together this will streamline the fundraising process and go a long way to make you a more desirable prospective investment. 

Secondly, investors are known to put a lot of stock in a strong pitch deck. Once you’ve secured a meeting with an investor, this is the key to unlocking potential investment. PwC’s Antonia Burridge's top tip for pitch decks is the '5M' approach: Momentum, Management, Marketing, Machine and Money. A strong structure, narrative and powerful data will serve you well in the boardroom.

Do I need a lawyer?

Once the fundraising process is going, many founders bring a lawyer or law firm on board to consult over things like term sheets. But why should you invest in a lawyer? 

One of the many reasons to seek legal advice is to avoid a deal falling apart at the final hurdle because terms haven’t been thoroughly reviewed. 

“I’ve seen an acquisition fall through because of cap table issues. The buyer lost faith in the company because there was no record of who held which shares and for how long. Nor was there any detailed information about what the tax consequences would be as a result of the acquisition,” warns Mike Yang, Orrick. 

A lawyer may not be able to prevent all possible issues, but with their knowledge and focus on negotiating a good term sheet, they can help you secure the best possible outcome.  

Investors will angle for favourable terms and lay down expectations for an eventual payout. Utilise your lawyer’s expertise to avoid legal obstacles and prepare for tackling complex or jargon-filled term sheets. 

In a term sheet survey run by PwC Raise | Ventures, 75% featured preferential shares – a condition that some founders are not prepared for. If you’re a first-time fundraiser, a lawyer will give you confidence that you’re doing the right thing.

What difference do good investor relationships make?

The media often makes fundraising look like an overnight success. In reality, it takes hours of networking and relationship-building with potential investors – many of whom won’t be the right fit. 

That’s not always a bad thing, however, as you can plant the seed of a future professional relationship or receive warm introductions to investors more suited to your cause. 

Capdesk CEO Christian Gabriel’s advice is to always take a meeting when it’s offered – even if that meeting is in six months' time. Speak to a lot of people and the right few will stick with you. 

Another approach – favoured by startup and venture capital expert Fred Destin – is the ‘hunter or hunted’ perspective. In order to harness the VC revolution, Fred recommends three steps to successful investor relations: 

  • Build a list and understand which investors suit your startup 
  • Find out who is the right person to speak to within an organisation or fund 
  • Start building out high stakes relationships earlier than you might think 

Fundraising isn’t a straight line but with the support of advisors and by asking the right questions, you’ll make your time spent fundraising more efficient, productive and successful. 

For more information on fundraising, getting your cap table in order and working with advisors, take a look at the Capdesk resource library or get in touch with the Capdesk team

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