Fundraising Top Tips
Fundraising can be a daunting task as well as a big distraction when you least need it. So LegalEdge, the flexible in-house lawyers, asked their network to share some tips on how to make it happen as quickly and easily as possible.
Chris Green, Co-Founder Young Foodies
- DO know your runway. Fundraising is a huge distraction for the founders and every minute spent fundraising is a minute not spent on the growth of the business. It’s important to properly evaluate the opportunity and the necessary growth capital to take advantage of it. Don’t under-estimate your investment round only to end up raising again in 9 months’ time; that’s a sure-fire way to lose momentum in the business.
- DON’T flood the market. It’s all too easy to flood the market with your investment materials before generating any genuine interest and testing investor appetite. It is advisable to take a more patient phased approach as the feedback you receive from those early conversations will be invaluable in shaping later discussions. Investors don’t want to see the same presentation 3 times – it sends the wrong signals.
Stephen Kelly, Chairperson at Tech Nation, Entrepreneur, Investor
- DO primarily focus on ‘running the business’ – delighting customers and engaging employees. Don’t let fund-raising distract & allow the growth to suffer. Plan ahead for 12-18 month cash runway.
- DON’T create fantasy valuations and risk a future down-round. Plan, Prepare, Play – have all the likely Q&A and DD materials ready for rapid response.
Aarish Shah, Founder Emerge One, CFO Squad for Fast Growth Start-Ups
- DO tell a great story: fundraising is all about selling, and in order to sell you need a great narrative but always make sure that your narrative and your numbers match up – your financials should be telling the same story as you are.
- DON’T make a number up if you don’t know what it is: I’ve come across founders who would rather grab a number out of thin air when asked about a certain metric or piece of financial information and the problem with that is that it is very easy to verify. And if you’ve made it up, you’ll get found out and lose trust. Much better to say, I don’t have that number to hand but I’ll get back to you with it.
Anindita Doig, Consultant General Counsel and Angel Investor
- DO explain with detail and with as much evidence as you can! Say what you want to do with the money and detail its expected benefit to the business. Many businesses simply say they want to raise £500k “to expand”. This is not enough. Say that you have a fully costed platform development plan, or a fully costed plan for pivoting towards an e-commerce model. Give details of build costs, project schedule, and anticipated benefits. If you have identified partners or subcontractors, mention them and their credentials. Use recognised and relevant metrics to demonstrate the return on investment, such as unique visitors per month, value per basket, etc as well as revenue projections. But DETAIL on what you are going to use the money for, and how you expect that to affect the business, is key.
- DON’T inflate the “addressable market”. People are weary of reading that this new type of catflap operates in a pet products market of £300 gazillion. It’s much better to be narrow and specific. E.g. “The market for catflaps in the UK was £20m in 2020. Our new type of catflap can expect to take around 20-30% of that market within 3 years, and hopefully increase the market as well. We are aiming for a £10m pa turnover within 5 years, valuing the business at £30m on a 3x revenue multiple.”
Gary Jesson, Advisor & Mentor at Informed Funding, Managing Director at EFM
- DO get the right investor. It sounds obvious but many are sector, location, size etc specific (check out their websites). They will want rights that might not always be compatible or have a team where the chemistry is wrong. They will be on the same journey with you for several years so a mistake at the start will be difficult to alter later.
- DON’T ask for too much too early. You need to consider how the business will develop – i.e. look at proof points such as MVP, revenue traction, spending on sales and marketing before you have a product to sell, hiring full-timers when part-time might do, etc. This can lead to disappointment when you and the investor are not aligned with revaluation. BUT there’s a balance and you need to ensure you ask for enough (just at the right time) – e.g. there’s lots of confusion around debt, equity, convertibles, etc. It’s expensive to go back and ask for more at the wrong time – my simple rule of thumb when I see a business plan is to halve the revenue and double the costs and then see what the cash requirement is!
David Pattison, Chairman, Mentor, Investor, Author of the Money Train
- DO leave yourself plenty of time to raise the funding. It always takes longer than you think and you should never be in a position where the money is running out.
- DON’T underestimate how hard it is to raise money. There is not a money tree that you just need to shake, prepare, prepare and prepare and get as many interested parties as you can.
LegalEdge can help guide you through your investment round quickly and efficiently so you can get on with running your business. They help get the right structure and documents in place and help you get the best possible deal.