As the UK investment landscape continues to go from strength to strength, it might be a good time to raise the funds you need to get to the next level of scale.
As we continue to work with startups across all verticals on their investment transactions, here are our four top tips for getting ready to hit the fundraising trail.
Tip #1 – make sure your cap table is right
Usually when we’re talking about ‘investment’, we’re talking about the investor paying money for shares (or something else that can turn into shares later on). Investors might want to talk about valuations, percentages of the equity, plans for option pools and future rounds – and all of those discussions depend on the premise that you have a clear, complete, and above all accurate picture of who holds your shares today.
That can be more difficult than it sounds! There are lots of different documents and sources of information that are involved with your cap table, and they don’t always agree with each other; plus you might have had discussions with collaborators or board advisers about taking some shares, or might even have had an early shareholder or co-founder leave and give back some of their shares.
The single most valuable thing you can do before you go out looking for investment is make sure that all of these potential issues are nailed down – no promises hanging out there, no formalities that still need doing to issue shares or take them back, no disagreement between the company’s own records and Companies House.
Get that right, and you can discuss equity with your investor from the right starting point.
Tip #2 – check your key assets
You’ve probably heard it said that, at the early stage in particular, an investor is really backing the idea or the founder(s) more than the company. There’s definitely a lot of truth in that; when you pitch, you’re selling the investor on the possibility that you can go on to do a really big sale or IPO at some point in the future. You have to convince them that there’s a big enough market for your company to go after, and that you are the team to win it.
That said, however big the picture, there are some fundamental building blocks that investors will generally want to see in place. Does the company own its intellectual property, whether that’s code or designs or even a patent? Are there any really key people and, if so, are they tied into solid arrangements with the company? If you’re doing clever things with people’s data, have you looked at your data collection arrangements and made sure that you have the permissions to do what you need to do? And so on.
It’s not the end of the world if an investor spots a problem here, but best case they’re going to insist that you fix it; and it can start to chip away at an investor’s confidence if they find that your key assets aren’t properly protected within the business.
Tip #3 - do your homework on potential investors
Maybe you’ve got a longlist of lots of potential investors, or maybe you’ve got just a few ‘dream investors’ lined up. Either way, before you start taking meetings, there’s plenty you should be doing.
Let’s start with the obvious – how do you get a meeting? Do you know anyone who can make an introduction for you, either in your immediate network or in the next level? Although lots of investors are making conscious efforts to cast their nets wider, a ‘warm intro’ from someone they know and trust will tend to go a long way to getting you that all-important pitch. If not, are there any events taking place where you might be able to bump into them – or are you sending an email?
However you’re playing it, now’s the time to nail down what it is that this investor in particular is interested in seeing. If they have a blog, or are active on social media, get to reading! If not, see if you can get a feel for the other companies they’ve invested in and whether there are any common threads.
Increasingly, investors are looking for their investments to fit a thesis that’s a bit more involved than just ‘pick the winners’. That might be a desire to champion founding teams with BIPOC, female or LGBTQIA+ members, a particular concern for your environmental or social credentials, or any thesis the investor has determined best for them.
As with a sales pitch, you should be emphasising the things that matter to the person you’re pitching to. You might not major on the sustainability of your product in every pitch but doing it in the right one could be the key to getting the cheque you need.
Tip #4 - it will take more of your time than you think
I know I’ve made this sound like an involved process – that’s because it is! Raising investment could well be the next step in the growth of your startup. The process itself can be long, and long or short it will require a lot of effort. Give some thought to how you’re going to divide up that responsibility, and that workload, among your team – and bear in mind that the business has to keep running in the meantime.
If you have a small team of co-founders it might be possible for everyone to take on a bit of the fundraising workload alongside their day job? Or you might find it easier if one founder majors on the funding and the others on the business.
If you’re flying solo, don’t be afraid to lean on your mentors and advisers as well as your employees and consultants. It can be nerve-wracking to take your hands off the wheel, even for a short time, but you’re going to need to free up some bandwidth if you’re going to nail the investment process.
By David Willbe, Corporate Investment & Technology – Lewis Silkin
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