Closing an investment is something that could theoretically take less than a month, but this almost never happens. Normally six months is a good ballpark to start preparing your agenda, but what can you expect from this process?
We can divide the procedure of sourcing investments in 3 different moments: preparation, marketing, and negotiation.
During the preparation stage, the company and its advisors need to create all the documents they will need along the road and run a sell-side due diligence to be sure that the process will run smoothly without major obstacles.
Then it’s time to market the investment opportunity to funds and investors, reaching out and creating interest.
Finally, it’s time for negotiations to start, reach a common understanding, an agreement, discuss terms and conditions, and shake hands.
Think about the process of raising funds as preparing a meal, cooking it and eating it with friends: a good dish is made in the kitchen! Similarly, the bases for a good raise lie in the preparation of the company and all the relative documentation.
All the time spent in the preparation of the fundraising journey is not only recovered later but can safeguard the overall process from bad surprises.
The main steps during the preparation are:
- Documentation and Clean Up – clean your house before inviting guests
- Business Plan – know what you want to be when you grow up
- Valuation Model – be realistic
- Info Memo – everything in one place
- Teaser – are you interesting enough?
- Data Room – documents deluge
- Sell-Side Due Diligence – the devil’s advocate
- Accountants – get them on board
- Lawyers – marry one
- Potential Adjustments – ready, steady…
Everything ready? Now you have to go out there, meet people and explain what you are doing, what you need and how you are planning to go forward. The first thing to have in mind is to know who do you want to talk to. Who’s your ideal investor? Who’s your ideal partner?
This stage will be paced by your ability to attract opportunities and by the following materials:
- Investors List – who’s your ideal partner?
- Teaser – to name or not to name?
- NDA – standard but not for all
- Information Memorandum – things get serious
Once you have enough interest from potential investors you will start receiving offers and negotiate your way towards closing the deal.
The main steps in this final moment are:
- Heads of Terms/LOI/MOU – many ways to come to terms
- Due Diligence – a very intense period of your life
- Closing – start planning your next round