1. C o o l e y I n s i g h t s : V e n t u r e C a p i ta l
20
1.
Suggestions
in Preparing to Raise Venture Capital
Target List. Create a target investor list using key criteria including: (a) industry sector; (b) investment
stage (i.e., Series A, B, C, etc.); (c) geographic proximity; (d) amount to be raised; (e) comparable/competitive
portfolio companies; (f) potential investor contacts. Find out as much information as you can about the current
investment status or activity level of your target investors.
2.
Ready for Prime time? You usually only get one bite at the apple so don’t seek venture capital if you are
not quite ready. Consider raising angel money or friends family money first in order to hit important milestones
that will make your business more marketable to venture firms.
3.
Documents. Prepare three documents: (i) a thoughtfully reasoned full business plan; (ii) a one to two page
executive summary of the business plan; and (iii) a Powerpoint presentation. A full business plan should include
a business model, financial projections and assumptions. Remember: even if the full plan does not get read, the
process of writing it will crystallize the issues. You are selling securities so understand your disclosure obligations
under applicable securities laws.
4.
Projections. It is critical to have detailed projections, with clearly defined assumptions, to illustrate path to
revenues and profitability, target vertical markets, etc.
5.
Write well. If you can’t write well, ask a friend who can to help or hire a good writer.
6.
Elevator Speech. Write your “elevator” speech: you must be able to articulate your vision in a succinct way
in less than a few minutes. What is your value proposition in plain English?
7.
Practice Your Pitch. Find a friendly audience (including at least one experienced investor) who can help
identify gaps and weaknesses in your pitch. When you make your actual presentations, space them so that you
can incorporate feedback and suggestions in subsequent pitches.
8.
“Kitchen cabinet”/advisors. Surround yourself with good advisors who are experienced in raising
venture capital, whether board members, attorneys, accountants, professional investors or industry executives.
9.
Liquidity. Know your probable path to liquidity. Venture investors are not interested in “lifestyle” companies or
overly long-term investments.
10. Management Team. This is critical to investors and it is important to articulate clearly your background and
experience, who has joined the team and who will likely join the team. Do the founders have money or meaningful
“sweat equity” in the company? You must have some skin in the game.
attorney advertisement.

2. 20 Su g g estions i n Pr e par i n g to Raise Ve ntu r e Capital
1
1.
Competition. Know your competition and be prepared to distinguish your business model. Wrong answer:
there is no competition.
1 Clean Capital Structure. Create a good, clean capital structure (usually a Delaware c-corporation with
2.
10,000,000 to 20,000,000 shares of common stock).
13. Understand Valuation and Capitalization. If you don’t understand the basics of a corporation’s
capitalization, then ask someone to explain it to you (e.g., authorized vs. issued stock; reserved option pool vs.
granted options). Prepare a detailed capitalization table. Understand what realistic valuation expectations for a
company like yours may be to determine if venture capital is the right fit.
14. Document Options and Equity. Adopt a stock option plan with a 10%–20% reserved pool (but
remember that the full pool usually gets counted in your pre-money valuation by venture investors). Document
options and stock issuances right away. Don’t leave equity arrangements unwritten. Don’t enter into “squirrelly”
stockholders agreements. Do include a right of first refusal in your bylaws.
15. Know your Intellectual Property. Set up an IP counseling session with an attorney. Before you
approach venture firms, know what is proprietary and likely protectible (patents, trademarks, copyrights, trade
secrets). IP may or may not be a barrier to entry.
16. Due Diligence. Review a sample due diligence request. Prepare a due diligence binder. This facilitates the
fund raising process and gives the positive impression of being highly organized.
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7.
Term Sheet. Review a sample term sheet with an attorney before you start the process. Approximately 80
percent of the terms contained in a term sheet are non-negotiable, so focus on the more critical 20 percent.
18. Life Cycle. Know with certainty where your company is in the life cycle and target investors accordingly. Is
your company in the hangar, on the runway, taking off or at cruising altitude?
19. “Window dressing.” Do you have a business card? Phone number? Website? Product prototype?
References? Remember, sometimes little things send big signals about your stage and progress.
20. Non-VC Investors. Consider lining up a strategic investor or partner or reputable angel investor first and
use that to leverage venture capital interest.
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This fact sheet is intended as a general introduction to the transaction process and is not intended to provide legal advice as to any specific transaction; it will not be deemed
to create an attorney/client relationship between Cooley LLP and the reader and you may not rely upon any of the statements contained herein for purposes of any specific
transaction. Each transaction is unique, and will involve complex legal issues that can only be properly analyzed by an attorney who is retained by you to provide you with legal
advice specific to the facts and circumstances pertaining to that transaction.
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UPDATED 05/2010