By Murray Indick and Kate Tyler
Starting a business is incredibly hard. You need a great idea—ideally one that is disruptive and will scale and that you care about passionately. You need to recruit an amazing team, and ideally, have co-founders you trust and respect. And for those not blessed with inherited wealth, you need money.
Many entrepreneurs confide that raising capital is their hardest task. They delay and delay any approach to the capital markets for as long as possible. We understand. Most investors reject the opportunity to invest and being told “no” hurts.
However, if you want to increase the chance that you will successfully close a round in late 2017, try the following 10 step approach:
- Prepare a concise investor deck that tells the story of your business in bite-size chunks. Every narrative can be condensed to the essentials but it is hard, demanding work. Good students will recall that it is far more challenging to author a five-page term paper than a twenty-page essay. Rigorously edit your work!
- Review the deck with family, friends, and trusted advisors. Make sure they can tell you, after reading your draft deck, how your business will make money, how it will become profitable over time, and why investors should give you the capital. There are a number of great examples of publicly available pitch materials, so draw from ones that you like the most.
- Rehearse your presentation. Mix in humor to show your personality. But, most importantly, be brief. You should be able to introduce your company in three minutes; if it takes you longer, go back and edit your work again. The investor deck complements your presentation. It would be an unfortunate mistake to read the deck aloud.
- Showcase your deck selectively with investors who historically have shown an interest in your vertical, having given great care to curate potential leads. Experienced investors make snap decisions, and you do not want to be tarnished in the marketplace. Once you are rejected, an investor rarely makes an investment in the future.
- Take five to 10 meetings so that you can get feedback and adjust the presentation and investor deck as necessary. Perhaps the message was not as clear as you thought, or maybe a fundamental flaw in the business has been identified.
- Consider a website that separately contains useful materials, depending on the cycle of your business. Make sure it looks professional.
- Follow up immediately to information requests at the slightest sign of investor interest. You should anticipate and plan for business, legal and other questions, and ensure your documents are in proper order. Your goal is to soft circle an amount that the investor may be willing to fund.
- Know when to ask. At some point, it will be clear to you that reasonable diligence has been completed by the investor who has remained interested. At that point, ask for the order. Ask for the order. And, ask for the order. You would be stunned how often entrepreneurs fail to close a lead, misconstruing silence for rejection.
- Set a date to close a funding round, stick with it, and circulate proper legal documentation ahead of time. Be prepared to respond, quickly, to any questions raised about the documents. Review investor documentation to check that it is legally compliant in all respects.
- Send wiring information and close the fund-raising. Make sure all federal and state securities law filings are made in a timely manner. Share definitive documentation with investors, including a capitalization table.
After you’ve wrapped this up, go celebrate!
Murray Indick is a partner in Morrison & Foerster’s Corporate Department and Co-chair of the Emerging Companies and Venture Capital practice. Mr. Indick has more than 30 years of corporate law, investment fund and related experience.
Kate Tyler is an associate in the firm’s Corporate Group. Ms. Tyler’s practice focuses on emerging company and venture capital transactions.
Learn more about Morrison & Foerster’s Emerging Companies and Venture Capital practice.