Raising capital for your company is likely to be one of the most daunting, but ultimately rewarding processes any company will go through.
At Orchestra, we talk to a lot of companies at different stages of raising capital, and have also completed this process ourselves recently. The steps below detail some of the key learnings we’ve experienced through our conversations.
Do keep in mind that each raise is unique and in reality you are unlikely to move through the steps in exactly this order.
For the majority of businesses a raise will take longer than you think. Give yourself at least six months from when you absolutely need funding and be prepared for your general business cadence to slow as your days become filled with tasks relating to the raise.
Our friends at Snowball Debt have created a helpful guide of the types of capital/debt frunding and also the typical ways to raise funds. It is also vitally important you are clear around the intentions of the raise itself.
Important questions to answer include:
Cutting corners on preparation for a raise can lead to major challenges, extra cost and a loss in investor confidence . When talking to investors make sure:
The Orchestra team can provide a ‘free’ second set of eyes in regards to an audit of your current information when you do use the platform.
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 and wrong way to form this list but we always suggest using your personal networks to try 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:
A good suggestion to start 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(s) will be the ‘deal setter’ for the final terms of your raise. Once you have found and agree 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:
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 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 on 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, if you are dedicated to the process you will make it through the steps. Never hesitate to reach out to other companies or founders who have done this before as they will almost always be willing to help.