Venture Capital Raises in the Start-up and Angel investment market

planIn my role as a venture catalyst in the private investment market, I often get asked how to go about a raise and what value propositions angel investors are looking for in new companies?

This article may give you some insights after 10 years of raising millions of dollars for start up companies in New Zealand and around the world.

  1. Get investment ready
  2. Use a third party to help you (not your accountant or lawyer)
  3. build a strategic plan for business and for investment
  4. do your own due diligence on your business
  5. have all your financial modelling done by a mid to high level accountant
  6. get a board of advisors rather than signing up directors
  7. make more sales/do more of your core business
  8. listen to advisors when planning the raise
  9. Check out the competition, have they got funds and when?
  10. self evaluate as to how much you are really worth right now

Looking at each of these issues together and then separately we can self assess as a company if you are actually ready to go into a raise or not.
Most companies think a basic business plan, a good product or service and the end of year accounts and we’re off! But that will raise you tens of thousands and sometimes hundreds if you have a distinct marketable, scalable business that has no competition. These are the exception rather than the rule.

Using a third party such as a catalyst company, broker as they are known in the US or investment adviser is preferable to simply asking for leads through your accountant or lawyer. They are critical and valuable members of the team but their role should be firstly to build your financial model and then secondly to write excellent contracts and shareholders agreements and set up your trusts when required.

A strategic plan is different to your business plan in that it looks more critically at the long term objectives of your company. Strategy “a plan, method, or series of manoeuvres or stratagems for obtaining a specific goal or result: a strategy for getting ahead in the world.
Issues in your business are either strategic or they are not, you choose.

Doing your own due diligence means looking at the company from the investors’ perspective. Collating all information in a logical and sequential way that will allow them to quickly and effectively evaluate the business with the following items foremost in their mind:

  • Is the business operating at its full potential currently?
  • Are the legal documents such as shareholder agreements in place?
  • Has the company been independently valued at a true market rate?
  • Is the company meeting it’s current tax liabilities
  • Is it at its peak for profit or will increasing its equity grow it further?
  • Are the directors open and willing to take expert external advice?

Investors of any merit have usually looked at hundreds of opportunities and are good at “thin slicing” (see Blink by Malcolm Gladwell). They look a business over and have incredible ability in the first few meetings to get at the root causes of why the business has or has not achieved its key goals.

Above all build the momentum of the business, don’t sit still while a raise is on, there is nothing more exciting to an investor than seeing a company stretching itself for growth. That is what they are seeking. Companies that are moving quickly into the front row of their niche in the market. They want to catch it on the rise and take it where it needs to go with you.

Lastly get strong advisors on and around the team. Everyone needs mentoring. Look for a mix of experience and dynamism. You need a couple of long haul investor types who have across the market experience. But again don’t put your accountant and lawyer on your board. They need to be paid properly as key external advisors.

Have fun while the raise is on, you want to keep a high energy level about your business, and again you will attract more flies with honey. People want to be where the excitement is.

Have confidence in the strategy you are implementing and you will get some great input both in expertise and funds.

Yvonne McLaren
Director
Valentine Addis

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