You have been bootstrapping for months, exhausted your personal resources and the FFF (family, friends and fools) well has dried up a long time ago. You realize it is time to raise money from the venture capital ecosystem such as angel investors or VC funds for your start-up.
As with most things in life – a stitch in time saves nine. Preparing your start-up in advance can save you time, effort and put your start-up in the pole position to get a better deal.
First thing first, decide how much money you want to raise. You should have an updated business plan that will allow you to estimate how much funds shall be required to reach the next milestone on your road map. Taking into consideration the company’s estimated valuation, and the desired percentage of equity holdings of the investor in the company post investment, you should try to aim at an investment amount that will allow you to reach that milestone whilst keeping the dilution of your ownership in the company to a minimum. This is a delicate balancing act.
The next item on the list is conducting a corporate, IP, and accounting cleanup. Before making an investment, every investor will want to “look under the hood” of the company or conduct a “due diligence” as this process is called in legalese. In early stage companies this process will usually focus on the technology, the people (that means you) and basic corporate, accounting, and IP issues. Make sure you are ready for the process by having all relevant documents at your disposal and neatly organized. Make sure that all corporate actions are well documented, and that all IP has been assigned and transferred to the company. Preparing for the due diligence process in advance will make the process smoother and will signal to the investor that you take fundraising and running your company seriously.
Finally, gather a team of trusted advisors. Begin by building a board of advisors. Try to recruit prominent figures in your industry that are willing to lend you and your company their experience, sage advice, and reputation. Next, don’t forget to take onboard the “traditional” advisors such as startup-oriented lawyers, accountants, and business advisors. Good advisors will help you better navigate the rocky road to securing an investment.
This is of course not an exhaustive list. There are many other actions you can and should take in order to ready your start-up for investments, but hey, you got to start somewhere.
This Article Was Written By Adv. Nimrod Tauber, a partner at the law firm of DLE & Co. & heads of the High Tech & Venture Capital, Technology & Intellectual Property, FinTech, Cyber and Privacy Practice Areas.
Contact him at: firstname.lastname@example.org