Working with product startup entrepreneurs every day who are going through the fundraising process. Over time, I’ve found some entrepreneurs employing practices that make the process go smoothly. For those who seek funding here are some best practices to consider in your fundraising efforts:
Develop a relationship with investors early on.
Entrepreneurs often say that they do not need funding right now so they don’t need to talk with investors. Ask when they will need funding and surprisingly the answer is usually six to twelve months later. I advise the entrepreneur to start developing relationships now. If you wait six months and then start looking you’re behind. In meeting with an investor the entrepreneur can state that he’s not ready for investment but then lay out the plans for developing the business. By building a relationship now and keeping the investor informed of your progress, the entrepreneur will be in a better position when it comes time to raise the funding.
Have ready the executive summary, slide deck, and business plan with financials.
It helps to have the core three documents – executive summary (one-page only), slide deck, and business plan already developed and ready to go. As the entrepreneur meets prospective investors he can use the appropriate docs for each meeting.
Publish a periodical email newsletter for interested investors.
In the fundraising process, some entrepreneurs send out email updates to highlight the progress of the company. Some come as often as weekly to show progress in sales, product plans, and other milestones. This shows the company’s ability to execute.
Find a lead angel to develop a terms sheet and start off the funding round.
By finding a lead angel and creating a terms sheet, the entrepreneur removes the biggest barrier to fundraising – the negotiation process. There are numerous angel investors who find the initial negotiation and due diligence process too time-consuming. By eliminating this hurdle, the entrepreneur opens up the deal to a larger number of investors.
Make the deal terms “investor-friendly”
Of course, every deal must be negotiated. The harder the terms for the investor to accept the longer the time it will take to negotiate. By making the terms “investor-friendly” through reasonable pre-money valuations, preferences, and other terms, the faster the process goes.
Due diligence docs to a password-protected website
The due diligence phase can be sped up by having all the key docs already available. I’ve seen some entrepreneurs put everything on a protected website and then give out the password to interested investors. This knocks down the hurdle of trying to send 600 MB worth of documents through the email system.
Quarterly email newsletter after funding
It’s important to keep investors up to date even after the funds are raised since investors can help in other ways. Some investors bring a rolodex of contacts while others bring experience and coaching. By keeping them informed of your progress and challenges, they may be able to help. This practice is also useful for when it comes time for follow-on fundraising.
This guest blog post was provided by Hall Martin at TENS Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via their contact us form or by email: [email protected].
