What are your business goals in 2022? If raising funds is high on your list, then there are a couple of things you can do to increase your chances. The following blog is the first of a three-part series on getting investor ready – relevant for early-stage innovative enterprises and high growth potential start-ups that are planning on raising funding from Angel or Venture Capital investors.
Below, InterTradeIreland’s Lead Equity Advisor, Drew O’Sullivan, shares his expert advice on how to deal with preparation in advance of pitching to investors and how InterTradeIreland can help.
Ways to fund your growth – what are the options?
If you are a young, innovation driven, enterprise – you have, broadly speaking, two options to fund growth.
(A) You could grow organically, bootstrapping via founder/family funding and early revenues in products and services - including customised development and/or reselling other firms.
(B) You could look to raise external equity funding from accelerators, Angels or Venture Capital investors (VCs) - to build your own technology and marketing/sales capability to rapidly grow your valuation and revenues. In this case, capital from friends and family may still be the first capital raised on this Angel/VC journey.
Preparing to fundraise from Angel and VC investors
When considering how to prepare to fundraise from Angel and VC investors, here’s what you need to consider:
- How much are you raising and why?
- Who are you going to pitch to?
- What materials should you have already prepared before you go out to investors?
- Always have a ‘Plan B’.
How much are you raising and why?
The short answer to this is that you should raise enough to achieve value enhancing milestones, in order to attract your next round of investment. This allows your next investor to acknowledge your achievements and will make them interested in investing larger amounts of money at a significantly higher valuation.
The typical time-period expected for early-stage companies to achieve these milestones is 12-18 months. Although some businesses have achieved this in a shorter timeframe, raising for a shorter runway can be risky. As fundraising ensures senior management attention, raising for a longer period of time allows for management to focus on running the business, not just completing funding rounds.
Who are you going to pitch to?
Founders should actively try to tap into their own personal and professional network before going on to pitch to Angels and VCs. Many start-ups can achieve some meaningful validation with a relatively small amount of capital, which can be sourced through their own personal network. One benefit to this is that the people in your network have known you for years, they know your integrity, your professionalism, your drive, and how you handle crisis. However, before tapping into this network you should consider:
Can this person afford to lose the money they invest in you? Investing in an early-stage business can have a low probability of return with no clear time-frame.Will it negatively affect your relationship?Would they feel sore that they genuinely missed out had they not been invited to participate?
Additionally, when targeting Angels and VCs, you need to identify the right investors for your company. Many investors will often indicate how much they are likely to invest on their websites, blog posts or portfolios, which can save precious time. It can also be useful to look at their most recently announced funds – usually VC funds invest in new portfolio companies in the first 5 years of the life of the fund. If they have not announced a new fund in the past 4-5 years, they may not be deploying new funds.
What materials should you have already prepared before you go out to investors?
Founders should look to have quality materials ready in advance of securing pitch meetings with investors – not only to get the investors interested but for a smooth investment process. Fundraising can be time consuming for CEOs, so being prepared means the business won’t suffer from too much time spent on the completion of the investment round.
Some of these materials are part of getting the attention of Angels and VCs and helping them understand your proposition, others are more about helping them evaluate and hopefully complete the investment opportunity.
Your slide deck should be around 12-15 slides and should use bullet points - use this opportunity to clearly explain the business and investment opportunity. You can also present a demo video to your investors as this is a great way to demonstrate what customers will experience and value. It can also be used to give your investors a taste of what is to come.
Before investing, Angel funders will want to know if their investment in the start-up will be eligible for tax relief – it will be useful to have this information to hand.
What is your Plan B if the fundraising fails?
This is not material prepared for the benefit of the investor – but for the survival and health of the enterprise. Unfortunately, you will have to think about what happens if your fundraising is unsuccessful, if it takes longer than planned, or if you raise a lower amount than what is needed.
Whatever the reason, founders should have a cash flow plan B (or C) for delays or failure in fundraising if they want to stay in business. In addition, having this back up plan gives founders the option to walk away from deals if the investment terms on offer are unappealing to them.
Gaining investment in the New Year
Gaining investment for your start-up can be tough but there are a number of things you can do to increase your chances. Preparation is key in advance of pitching to investors and long-term planning will help ensure success for your company.
If you need help raising funds for your business, InterTradeIreland offers the following resources to innovation driven enterprises planning to raise a seed funding round in the next 6-12 months:
- One-to-one Equity Advisory clinics – where you can get feedback on your business plan/model and capital raising plan from our Lead Equity Advisor.
- Seed Finance Workshops - where we cover cash flow planning, investor expectations, investment terms, the investment landscape and the investment process.
- Venture Capital Conference – connect with the island's active investors and other like-minded entrepreneurs, learn the fundamentals of venture capital investment and get up-to-date on the current investment scene on the island of Ireland. The 2022 conference takes place on the 15th March 2022.
- The Seedcorn Investor Readiness Competition – designed to mirror the investment process and increase your investor readiness, Seedcorn boasts a €300k cash prize fund. Applications open in March 2022.
For more information on how InterTradeIreland can help you on your funding journey, please visit our Funding-Advisory-Service.