How to raise investment money for your Startup

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How to raise investment money for your Startup

  1. 1. Nick Holmes a Court nick@nickhac.com http://www.nickhac.com @nickhac How to raise Investment Money for your Startup Company Last year i successfully completed an Investment Raise for BuzzNumbers.com.au - A B2B technology media business focusing on Social Media Monitoring & Intelligence Software as a Service. The purpose of this document is to record and share my learning’s from the process. There were some aspects of the investment raising process that i was happy with, and some other things that after consulting investors and learning a bunch more, in retrospect i could have done in a more organised fashion that would have made the investment process easier. I wanted to share the process with other entrepreneurs and from my experience offer insights into how to raise money for your company. Note: Every company, investor and investment is different; the methods below are based on my personal experience and may not be the right path for your company. Process Overview Raising investment money for your company should be treated like a project, with a plan which you execute upon with timeframes, milestones and tasks assigned to team members. This increases the change of closing your capital raise successfully. If you like you can put all the timelines and tasks into BaseCamp or Excel or some kind of project tracking system for maximum efficiency. I like to use Google Docs for all Lists and Documents. 1. Prepare Company Information 2. Engage Investor Market 3. Execute Due Dilligence Process 4. Close Investment Capital Round In my experience you should expect this process to take anywhere from 6 weeks to 6 months depending on the amount of capital you are raising, the complexity of your company, the complexity of the investment structure, the economic climate, the number of available investors, the number of available investment deals and the readiness or maturity of your company. Also prepare yourself mentally for an exhilarating time with a whole heap of stress, high’s and disappointments. It’s likely than a potential investor who expresses interest early will later pull out, be sure not to take it to heart. Just like anything, closing investment money is about relentless persistence. The joy and validation you will experience when you close your first investment round will likely be as no other experience you have had in your life ☺ Good Luck!
  2. 2. Nick Holmes a Court nick@nickhac.com http://www.nickhac.com @nickhac Step 1 : Prepare Company Information Before you go to the angel market to raise money, you need to prepare a bunch of information to ensure your investors quickly understand the opportunity and can work through the investment decision process to a favourable outcome. Having all your information prepared in advance will make the process much easier for you, reduce the time required during the process and will increase your chances of closing an investment round. Potential investors will see you and your company as organised, efficient and professional thereby an attractive company to work with. Company 1 Page Overview Prepare a company summary as a teaser about your company and the investment opportunity. [Insert link to Sample 1 Page Template Here] 10 Slide Company PowerPoint Create an attractive succinct presentation that can be delivered in 10 -15 minutes. Key Slides should include: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Problem we are solving Why you should care about this problem Our solution and why it is unique and defensible Target customers/industry and any customer wins to date Business Model / Pricing Model (how we make money) Market Analysis and Sizing Go To Market Strategy (Marketing / Sales / User or Customer Acquisition Plans) About our team and why we are the right team to win this market Financial Projections (and Historical performance if available) Investment Offer (Amount Sought, Valuation Range and how you came to that valuation, Proposed Investment Structure IE Convertible Note or Equity Purchase) 11. Why/how this investment will make an investor money + recent market exits [Insert link to 10 Slide Presentation Here] Investor Contact Log Prepare a List of potential Investors in a spreadsheet with full contact details and keep notes on dates and meetings and what you have sent when, in my list i had 30 contacts from family to strangers. Sample Data might look like: Investor Name Contact Details Bob Smith CompanyName bob@smith.com 0411111111 @bob jane@doe.com Jane Doe CompanyName How you know them Met at Sydney Angels, knows X Person Seen on LinkedIn Investment Sought $XXXk 1 Page Sent Yes, 17/06 ? No Presentation Date Delivered 04/07: Notes on meeting Not Set Letter of Interest? Received DD? Deal? No No Not Sent No No
  3. 3. Nick Holmes a Court nick@nickhac.com http://www.nickhac.com @nickhac Step 2: Engage Investment Market Once you have all your investment material prepared and checked it several times over, you need to run a process of engagement with all the potential investors. It’s important to create competitive tension or at least ensure that each investor is aware that this is nt a great opportunity and that there are multiple potential investors consisting the opportunity. Day 1 Send to 1 page teaser to all potential investors Day 3 Set meetings to view 10 minute 10 slide investment opportunity presentation. Day 5 Confirm meeting times and locations Presentations - First Meeting 1st Meeting: Meet and build rapport, 10 slide presentation, discuss opportunity, set next meeting Information Phase 1 - Second Meeting Product Demo, Meet Team, View DD Pack Overview, Discuss Investment Opportunity Information Phase 2 Expression of interest, View Hard Copy of DD Pack, Send DD Pack Overview Term Sheet Agree Investment Amount & Terms Due Dilligence Phase 1 Provide full DD pack with all information Due Dilligence Phase 2 Investor Requirements: Customer meetings, 3rd Party Audits, Additional information Close Execute Legal Contracts
  4. 4. Nick Holmes a Court nick@nickhac.com http://www.nickhac.com @nickhac Step 3: Execute Due Diligence Process with Interested Investors To move into a Due Diligence phase make it clear to potential investors that you will require a nonbinding written expression of interest. Prepare a 1 page document for your investor to sign which may include a confidentially & limited time non-disclosure agreement, if the investor in uncomfortable with that you may just ask for an expression of interest in written email. Written Expression of Interest Having written expressions of interest can be used across your investors as a technique to create competitive tension and a feeling of scarcity or risk of lost opportunity if they don’t act quickly. EG: You will be able to say: “we have a number of signed expressions of interest, we think you would be our preferred investment partner and would really like to work with you - if you are interested in finding more about this investment opportunity and you have the capacity to invest right now it would be great to move quickly into the next phase of due dilligence”. This will also filter out any investors who don’t have the capacity to invest or who are just browsing investments without a real need to act. There are plenty of “Angels” out there who are curious about deals or don’t personally have the cash to invest in your company and its better to find out sooner than later. Due Diligence Pack Once a potential investor has provided a written expression of interest you should advise the investor that you would like to move into the due diligence process. Each investor will have a different set of requirements and if not proactively managed this DD process can suck a huge amount of your time in responding to a long series of unique questions. A technique for reducing time in DD is to create a Due Diligence Company Information Pack. This pack will improve your chances of getting through DD and will make it easier for your angel to invest in a timely fashion. The DD Pack is essentially proactively prepared information about all possible aspects of company information that an interested investor might ask about. Using the language of “Due Diligence Pack” for this as opposed to a “Company Information Pack” or “Investment Memorandum” or something like this as it works like a sales closing technique. Anyone can browse a Company Information Pack, but by entering into a “Due Diligence” process your potential investor is guided towards an outcome. As you move through the earlier stages of your investment process speak often of your Due Diligence Pack, and you can offer the potential investor the table of contents of this pack to demonstrate you are serious about your company and that you are well organised and prepared to execute a transaction quickly and professionally which is appealing. I personally like to prepare this in Hard Copy in a nicely bound folder, and when presenting it to potential investors ill run them through the hard copy in person. I would suggest only releasing this to an investor in soft copy once you have a signed Term Sheet.
  5. 5. Nick Holmes a Court nick@nickhac.com http://www.nickhac.com @nickhac 1. Company Overview (2-3 Pages) Mission Statement or Mantra Customer & Market Summary Technology Summary Company Summary Financial Summary IP Summary Product Summary Sales & Marketing Summary Team Summary Board Information Management Team Bio’s and Personal References Company Valuation Model Investment History and Future Requirements Accounting Systems Bank Account Statements Balance Sheet Cash Flow Statements Sales Process Outline Customer Contracts CRM Opportunities List Cold Calling Scripts Account Setup Process CRM Leads List Market Research Press Releases Product Brochures Customer Surveys Team Structure / Hierarchy (current and future) Contractor Contracts Policies & Procedures Employment Forms & Contracts Customer References Signed Contracts Roadmap Product Specifications Infrastructure Overview Systems Architecture Technology Standards Vendor Contracts Shareholders Agreements IP Ownership Contracts Trademarks All Historical Contracts 2. Corporate Shareholder Information with ASIC Records 3. Finance 3 Year Financial Model 4. Accounting Overview of Accounting Standards & Procedures P&L 5. Sales Sales Strategy Customers Order Form CRM Overview 6. Marketing Marketing Strategy Email Marketing History 7. HR Corporate Culture Summary New Starter Guides Confidentiality Agreements IP Waiver/Assignment Contracts Current Employee Full Contact Details and Emergency Contacts 8. Customers Customers List with Full Contact Details 9. Technology Summary Project Plans Testing Standards 10. Legals & IP Corporate Structure Patents
  6. 6. Nick Holmes a Court nick@nickhac.com http://www.nickhac.com @nickhac Why spend the time to prepare this Due Diligence Pack? Preparing all the information in this DD Pack may take a 2-3 weeks of founders time so be aware that it will need to be scheduled in and may also require input from multiple persons. Not all items and sections in this may be relevant for your company. Its good corporate practice to have this information prepared and kept up to date throughout the lifecycle of your business. It not only helps to truely define and understand your company and the opportunity you are engaging but it also ensures that the business isn’t just all in your head and that if a bus hit you the company could be run by someone else which is what investors and acquirers are looking for. This DD Pack material also prepared is also extremely useful if you ever decide to sell the company or get an M&A opportunity. If you do have the opportunity to exit the company you will be more likely to close that exit transaction, you will increase the value of that transaction and make the company more desirable to be acquired as it is well documented and has all the processes in place. Step 4: Closing an Investment Round To close an investment round you need to be at a point where the investor has expressed interest in writing, has acknowledged ability to commit funds in the required timeframe and there is goodwill between the parties towards an exciting opportunity and investment return. Typically you should have a term sheet, which refers to key agreed items like Investment Amount, Valuation and Investment Structure and specifies that the investment is non-binding and is pending successful completion of due-diligence and agreement of legal contracts. You will need a number of key documents, if you have these prepared in advance this can help the process, although from my experience most investors like to prepare these as it gives them greater peace of mind that you aren’t doing anything their lawyers don’t approve of. Expect the cost of legals to be anywhere from 5-10K upwards. If you are a really early stage company your investor should let you use the money you raise to pay for your 50% of the costs of this. For equity/share purchases you will require a Sale and Purchase Agreement (SPA) and a Shareholders Agreement. For Convertible notes you will require a Convertible Promissory Note Contract, although some investors may also want a Shareholder’s Agreement. [Insert Link to Example Sale Purchase Agreement] [Insert Link to Example Shareholders Agreement] [Insert Link to Example Convertible Promissory Note Contract]

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