Every start-up operates in its own unique circumstances. It has its own mix of products, people, markets and operating methods. It has its own vision of its past, present and future. Differentiation moves markets.
Every start-up seeking funding or raising post-establishment capital also requires a customised pitch. It pitches its circumstances and vision to raise funds. Information moves markets.
Sharing information on differentiation brings together start-up entrepreneurs and founders with investors. Collaboration supported by documentation moves markets.
Differentiation, information and documentation have grown trade since ancient times.
This article is a “how to” checklist for start-ups and investors seeking to get together.
Sections 1, 2 and 3 of the checklist have questions and commentary to help gather information for informed investment decisions.
1. To raise funds, prove your venture is thought out, and has already secured, created or targeting something different and tangible.
- Describe that something. Is it a product, service, technology, business system or a combination? Do you have a venture profile, website or product prototype? To communicate your something, it may be useful for you to use photos, graphics, videos and a glossary or dictionary of defined terminology specific to your product.
- Describe the market you will, can or are addressing. Don’t say, for example, “game space”. A “space” is not a market. Markets have places or mechanisms by which traders communicate, tradable assets or services are offered, transaction proposers (eg sellers) and transaction acceptors (eg buyers).
- What characteristics about that market make it attractive? For example is it data about its size, growth, location or other characteristics?
- What is or has been the “go to market strategy”, ie what is the market entry and capture strategy?
- Do you have testimonials or letters of intent or satisfaction from existing or prospective clients, a track record of transactions, experience, a network of collaborators, membership growth, or prospective orders?
- What does your web presence indicate to its various audiences? The audiences may have many sub-groups, eg end users, partners and investors.
- In seeking funds, where is the venture or business positioned presently? The table below might trigger your thinking.
2. Do you have the information ready to now make a clear proposal to investors?
- What is the investment sum you seek and when or in what instalments do you need it?
- Do you have a budget indicating when and on what needs you will apply investor funds?
- For what purpose do you seek investor money? For example is it for product development, increased production capacity, growth and expansion, market development, or working capital.
- Do you have a cash flow forecast? It might show that your gross margin is sufficient to generate enough profit to make the business cash flow positive in a defined period of time.
- What is the current pre-money valuation of your venture and on what basis is that valuation derived? Is the valuation broken up into line items for various components of the business? Those components can include any things of value, eg contracted clients or suppliers, developed source code, brand names, or hardware.
- What valuation of the business do you aim to reach before you go for a future second round of fundraising?
- What are you offering in return to investors? For example this may be a shareholding, board position, access to intellectual property, scalability if the investor is also a collaborator or competitor in your sector, technology team, management team, a combination of these, or something else.
- What investor controls will you accept? This may be many things, control over employee remuneration, control over expenditure over a certain level, veto over future introduced directors or investors etc.
- What exist strategy is available for the venture or the investors and when do you envisage those exits will be available?
- Do you have an in-house template investment document or terms sheet?
3. If you don’t have documents to communicate the above information, prepare these to pitch for significant investment funds.
- Proposal for Investors. Prepare this. It can be a set of bullet points or might be more fully detailed. It could be formatted as a letter but better still it can be formatted as a terms sheet, a set of topics with positions stated for each. They include investment sum sought, purpose for the investment, available documents (see below) which can be referenced, shares and share price offered, and control or veto powers.
- Slide Presentation for Investors. Prepare this with say 10-15 slides. Usually slides help to simplify the pitch made by the proposal for investors.
- Due Diligence Folder for Investors. Prepare this as it is often required by sophisticated investors. The folder will contain a great deal of information categorised to facilitate review by managers, accountants, lawyers and others on the investor’s advisory team. The folder might be in hardcopy format, on a client-server architecture or in a cloud service such as DropBox, Google Sites, or Basecamp.
- Cash Flow Forecast. Prepare a financial forecast for at least two years, perhaps segmented into monthly periods and present worst case, most likely, and best case. Ensure you state your assumptions. Calculate your monthly cash burn rate, and how long you can last at this rate. Determine where revenue will come from and how it will appear in say 30 days, 60 days, etc. Incorporate this information into a cash flow forecast.
- Business Plan. Prepare a business plan with accurate financials, projections, and conservative forecasts, even if this is in merely bullet points over several pages. It is not commonly noted that a business plan is one of many types of planning documents in business. each of which varies in its form, content and purpose – action plan, tasks list, functional specification, technical specification, business plan, strategic plan, R&D plan, technology plan, marketing plan etc. Following is a typical contents list for a business plan:
- Market Research
- Staff and Skills Analysis
- Product Development
- Equipment, buildings, assets
- Accounting, financial and tax planning
- IP Protection
- Management and governance
- Exit strategy
- Attachment – Budget
- Attachment – Intellectual property
This checklist records learning from practical experience in consultancy and legal work for start-ups and investors in hundreds of transactions. We welcome your call or email to discuss your unique needs as a start-up or investor.
Contact us with any questions or requests.