How to raise investment money for your Startup

Nick Holmes a Court [email protected]

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.

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!

1. Prepare Company

Information

2. Engage Investor Market

3. Execute Due

Dilligence Process

4. Close Investment

Capital Round



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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. Problem we are solving

2. Why you should care about this problem

3. Our solution and why it is unique and defensible

4. Target customers/industry and any customer wins to date

5. Business Model / Pricing Model (how we make money)

6. Market Analysis and Sizing

7. Go To Market Strategy (Marketing / Sales / User or Customer Acquisition Plans)

8. About our team and why we are the right team to win this market

9. Financial Projections (and Historical performance if available)

10. 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 How you know

them

Investment

Sought

1 Page

Sent

Presentation

Date

Letter of

Interest?

DD? Deal?

Bob Smith

CompanyName

[email protected]

0411111111

@bob

Met at Sydney

Angels, knows X

Person

$XXXk Yes,

17/06

Delivered 04/07:

Notes on

meeting

Received No No

Jane Doe

CompanyName

[email protected]

Seen on LinkedIn ? No Not Set Not Sent No No

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

It’s important to create competitive tension or at least ensure that each investor is aware that this is

a great opportunity and that there are multiple potential investors consisting

Investor Requirements: Customer meetings, 3rd Party Audits, Additional information

Provide full DD pack with all information

Expression of interest, View Hard Copy of DD Pack, Send DD Pack Overview

Information Phase 1

Product Demo, Meet Team, View DD Pack Overview, Discuss Investment Opportunity

Presentations

1st Meeting: Meet and build rapport, 10 slide presentation, discuss opportunity, set next meeting

Set meetings to view 10 minute 10 slide investment opportunity presentation.

Send to 1 page teaser to all potential investors

Investment Market


with all the potential investors.

nt to create competitive tension or at least ensure that each investor is aware that this is

a great opportunity and that there are multiple potential investors consisting the opportunity.

CloseExecute Legal Contracts

Due Dilligence Phase 2


Due Dilligence Phase 1

Provide full DD pack with all information

Term Sheet

Agree Investment Amount & Terms

Information Phase 2


Information Phase 1 - Second Meeting


Presentations - First Meeting


Day 5

Confirm meeting times and locations

Day 3


Day 1

Send to 1 page teaser to all potential investors



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nt to create competitive tension or at least ensure that each investor is aware that this is

the opportunity.








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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 non-

binding 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.



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1. Company Overview (2-3 Pages) Mission Statement or Mantra Company Summary Product Summary

Customer & Market Summary Financial Summary Sales & Marketing Summary

Technology Summary IP Summary Team Summary

2. Corporate

Shareholder Information with

ASIC Records

Board Information Management Team Bio’s and

Personal References

3. Finance 3 Year Financial Model Company Valuation Model Investment History and Future

Requirements

4. Accounting Overview of Accounting

Standards & Procedures

Accounting Systems Bank Account Statements

P&L Balance Sheet Cash Flow Statements

5. Sales Sales Strategy Sales Process Outline Cold Calling Scripts

Customers Order Form Customer Contracts Account Setup Process

CRM Overview CRM Opportunities List CRM Leads List

6. Marketing Marketing Strategy Market Research Product Brochures

Email Marketing History Press Releases Customer Surveys

7. HR Corporate Culture Summary Team Structure / Hierarchy

(current and future)

Employment Forms & Contracts

New Starter Guides Contractor Contracts IP Waiver/Assignment Contracts

Confidentiality Agreements Policies & Procedures Current Employee Full Contact

Details and Emergency Contacts

8. Customers Customers List with Full

Contact Details

Customer References Signed Contracts

9. Technology Summary Roadmap Systems Architecture

Project Plans Product Specifications Technology Standards

Testing Standards Infrastructure Overview Vendor Contracts

10. Legals & IP Corporate Structure Shareholders Agreements Trademarks

Patents IP Ownership Contracts All Historical Contracts



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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]