The Process of Raising Capital

I had lunch last Friday with a CEO who is looking to raise some outside capital.  Having never raised any outside capital previously, he asked me to give him a high level overview of the process I have gone through in the past raising capital for some of my clients.  I then decided this was a great topic for this week’s blog, as it is an extension of one of my previous posts, How to Raise Smart Capital. 

Several years back, he did take in some money from friends and family so he already had a cap table.  In its simplest form, the cap table simply shows a snapshot of investment/securities activity.  This is one of the key documents one will need to have current as any angel or institutional investor is going to want to have these details before investing in your company. During this time, one can begin to determine the valuation of their company, and consider terms they would be amenable to for an outside investment.  Along with the updated cap table, a company presentation (pitch deck) and proforma for at least 36 months is also essential.  These documents give the prospective investor a high level look at your company and the leadership team’s ability to succeed prior to initiating any level of due diligence. 

With regards to the pitch deck, I rehearse this repeatedly with my clients.  This is your often ONE chance to convince your potential investor that his money is better off in your company versus some other company.  Also I typically like to role-play with my clients so that they are conditioned to handle all the objections that the investor could bring up during the meeting.  As anyone who has ever pitched for capital knows, if in the first five minutes you don’t properly address an objection, you may have a scheduled 60 minute meeting, but in the eyes of the investor, the meeting may as well be over after five minutes.  

After you have your updated cap table, pitch deck, and pro forma completed, the next step is determining what type of investor you need? As you can read in one of my previous posts, this solely depends on what you are trying to accomplish by bringing in outside capital. The next step is the due diligence phase where the real work begins. This will include constructing a non-binding agreement with your potential investor which will include agreed upon valuation, terms of the equity instrument, etc. I highly recommend you consult outside professionals before meeting with investors.  There are many different ways to structure investment – convertible note, SAFE, PPM, etc. so take the time to educate yourself on the options and which one suits your company the best.

If you would like more details on the process or need assistance raising outside capital, please reach out to me.