Without raising external sources of funding, the majority of startups die. The process of raising funds is an indispensable and exciting one, but at the same time, it is pretty time-consuming and tiring. Starting from deciding which investors to approach till closing the deal, the process is never easy. And it doesn’t end there. The legal procedure and due diligence that goes behind can also be very confusing. Here is a crisp list of the significant steps required to raise funding from investors.
1. Becoming a legal entity – This is the first and foremost thing to keep in mind before deciding to give away shares in your business. Unless you are listed as a private limited company, you cannot raise money from investors.
2. Elevator Pitch/Startup Summary – This will contain the summary of your business. After reading the synopsis, investors should become more interested in what is the core of your business. Therefore, the pitch should be compelling, which makes people excited to know more about the company.
3. Business Plan – This includes all the facts, figures, and everything related to market research, traction, forecasts, the amount of investment sought, etc.
4. Pitch Deck – A Pitch deck can make or break your investment deal. It is either sent out as reading material or might require you to present it in front of investors.
5. Share capitalisation sheet – This sheet is usually drafted with the help of a solicitor to help prepare your share capitalisation table. It contains the structure of shares for your company before and after investment.
6. Targeting investors – This is an important step that will save you a lot of time in future. It is ideal for researching and making a list of the investors you will approach and tailor your documentation to their criteria.
7. Due Diligence – Due diligence is the investigatory work done around investment where the investor conducts detailed research into your company’s financial, corporate, and contractual status. You will be required to provide documents which will include your corporate information, budgets, employees and employment contracts, schedule of intellectual property, forecasts, key supplier/ customer contracts in place, a schedule of property or leases, details of other investors, shareholders and bank loans, tax and VAT filings and insurance documentation among a few other documents.
8. Term Sheet – The term sheet contains the terms on which your investor will give you funding. It can be by taking equity, a convertible note or other arrangements. It also sets out any conditions that you will have to meet to receive funding successfully. Note that this sheet is not necessarily a legally binding agreement. It is either prepared by the company’s side or the investor’s side.
9. Long-form documentation – The long-form documents that will implement the funding arrangement include – Shareholder’s Agreement or Investment Agreement, Vesting Provisions (these may be drafted into the shareholder’s agreement), Subscription Agreement and Articles of Association.
After all the investment conditions have been met, documents have been prepared and terms agreed, the next step is signing of the agreements and the transfer of the shares and funds. And finally, the last step is – a congratulatory party!
All the points mentioned above can look intimidating at first. But if you are willing to put in the labour and have the patience that a successful fundraising round requires, you will certainly succeed.
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