Most people go into a venture capital raise thinking that all they need is their accounts complete, a basic business plan and a great company.
Obviously that is the starting point but in order to complete a strong and relatively fast raise is to gather a strong team of professionals around the company in order to get it up to speed before any information memorandum is released to prospective investors.
The key areas that need covering are the legal and accountancy documents. Most companies have a good relationship with individual companies that have been great to start their business with. But when you are taking a company to a prospective new shareholder who may own companies that are worth hundreds of millions of dollars, they are expecting a standard of international quality.
The accountants who can provide a high standard of documents will be capable of developing a financial model. This means that they will be able to provide cash flow models for the investor to review up to 5 years forward. This is an expected outcome for the average investor to review. Normal company returns and profit and losses will be required as well. But a lot of accountants who are great for GST and PAYE returns are not always equipped to do the financial modelling required and therefore another firm should be sought. Your investment professional should help you with this service they should have two or three companies available to you for review.
Secondly legal documents need to be reviewed and especially trademark issues and intellectual property issues. Also shareholders agreements and any contracts the company has entered into need to be thoroughly reviewed. So the lawyer that is good for your house to be conveyed is not always the lawyer that has the information you need to complete a deal around your companies intellectual property for an online entity, for example.
Next you need to look at the branding and imaging of the company, this is key to the value of what you are presenting to the market (this is in reference to start up and high growth early stage investments). If you already have a strong existing brand it may still require a refresh if it has not been looked at for 3-5 years.
Other team members may include, brand PR, communication and marketing strategists, social media advisors and banking professionals with regards to debt funding for future expansion or property buying opportunities.
Once the team has been assembled you need a third party to co-ordinate the efforts of all those involved. Sometimes the initial raise instructions will come from an accountant or lawyer or even the bank introducing a prospective investor. But the team leader for the raise is best advised to be a trained professional, third party catalyst or broker who can step back from the company once the deal is done. Often with someone who has to advise the company on legal or accounting matters there is a major conflict of interest at some point in the deal that disqualifies them from being truly impartial.
Lastly you need to assemble a group of advisors for the long term for your company, if you are trading under $5million this will probably not be a professional director it may simply be someone who has helped mentor you or the company already. Some investors will sit on advisory boards in the bid to help the company grow to a point where they can make a more significant financial contribution. Above all the board members need to have some wisdom, patience and strong backgrounds in your type of business or a start up company they have taken into high growth. People with corporate backgrounds are great for larger deals but they often don’t understand the stress that smaller companies go through and therefore may be too risk adverse to help the company through a high growth period. This isn’t a hard and fast rule as some top managers are genuinely great leaders and therefore will be outstanding at helping you rally the troops to take the whole group forward for the win.
All of this takes time, although raises can be closed in a month, you are best advised to allow at least three months to get this 360 degree group around the table together and assist you in preparing the company strategically for the growth ahead.
A mature investor will recognise the wisdom of this type of spending and see you structuring for the long term and high turnovers. These are all strong buy signals and accepted also as part of being “investment ready”. They as company owners themselves know that, if you don’t do it for yourself, they will have to do it with you. This is often why they do not come in to invest because it will take too much time and effort on their part to get the company restructured for growth.
So go through an inventory of all these areas and see how they stack up:
- appropriate person to act as third party for the raise
- strong level of accountancy advise
- legal advisors who can direct you over trademarks and IP
- strategists as appropriate for PR, marketing, branding etc.
- good mentors and advisors on your board
Now you are ready to go to the market, with your game face on.