#Asia Concrete advice for raising money, straight from an M&A specialist

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“Be yourself”, “Hire the best team”, but what about technical part of fundraising? Here is some advice for day-to-day fundraising management

Advice FINAL

If you are one of those people reading TechCrunch, Venturebeat or e27 daily, you have probably noticed the increased amount of funding announcements over the last years.

Daily headlines about successfully closed deals dominate the tech blogs across the globe. The widely spread ‘iceberg of success’, can also be adopted to a funding round — people read how much money others receive but rarely how much work is behind a Series-A,B,C round or an an exit to a strategic investor.

Starting a business means having an idea and a vision.

However, creating a startup is correlated with a need for capital. Lawyers, company creation, building a minimum viable product and perhaps getting the right people on board costs money.

In today’s world, in Asia, Europe and especially in the US, pursuing venture capital funding has become the go-to strategy. Furthermore, getting angel money or a seed-funding from an institutional investor before even launching a product has become a daily game. Founders are constantly fighting for venture capital.

Seed Funding

Successful convincing an investor of an idea means also diving into reality and starting a real business.

Getting a seed-funding has become an ‘easy’ game when the startup has the right idea and a great team. Media companies, plenty of business angels, traditional VCs are all searching — and sometimes fighting — for the next billion dollar business – the next unicorn.

Also Read: 3 out of 4 startups still face fundraising challenges in India

When entrepreneurs start a business and approach investors in the early days (or even contact investors with a paper business plan) they have time to focus on the fundraising.

Later on, if the business takes off, other operational topics such as the product, HR, competition, growth and so on will demand time and attention.

That is why it is easier for early-stage companies to manage the process and invest time into beautiful pitch decks, teasers and business plans.

Series A and later rounds

At this stage, the company has already been in business and is managing the daily operations.

So pursuing a Series-X financing round, or even an exit, means additional efforts for the team. It will require time, sometimes sweat and telling the team it is time to raise funds.

And I do not mean just the CEO or CFO, it is really the entire company.

Of course, there are founders who have an extremely great network and have a talent for raising funds and selling their story to investors. But I would say this is an exception rather than the rule.

The average Founder should be well-prepared, expect tough times during the fundraising process and batten down the hatches for a process that typically can take up to 6 months and sometimes even longer.

The good thing is: It does not really matter in which stage your company is and if you are looking for one, five, or 20 million bucks (or even if you are planning to sell your company) because the ‘process’ is always very similar.

Yes it includes different complexity levels — more matured companies have to prepare more data, audited financials, historical and empirical values and KPIs, while younger companies have to sell the future — but the approach should remain similar.

Excellent preparation is key

Interested investors are willing to understand every single detail about the Founder and the key team. This means the product, the technology, financials, KPIs, the market, and of course the vision and mission.

There are stories of a Founder convincing well-known investors with a single phone call or while having beers to invest into their company – again, the is the exception.

In most cases a quality pitch requires excellent preparation and professional execution to achieve a successful transaction and maximum value for the founders.

Also Read: Want to get your company in the news? 8 tech journos offer advice

In order to close a deal, a Founder will have to prepare the aforementioned data and present it in an understandable and clearly structured pitch to potential shareholders.

But before even getting to the pitch, the first step is to find a suitable investor, and believe me, there are more of them than it seems.

So, compile investor lists, search for contacts, approach the investors, and manag the momentum.

Don’t forget, the fundraising process can take up to 6 months, so this means it is essential to focus on the daily business.

Additionally, the startup will have to set-up a transparent and detailed financial plan, compile a transaction presentation, have phone calls and meetings with investors, get the required information from the team

And, very importantly, do not forget lawyers, tax advisors and other parties which are involved in VC deals. They need to be managed as well.

External vs. internal help

I have raised funds as an M&A banker for many companies across several industries but experienced a totally different while acting as a CFO/COO of a fast-growing software company.

While the seed-round was quite easy, it took much more effort to get a multi-million Series A closed while managing daily operations, keep the company on its growth path, push the international expansion, manag the cash flow and sales, keep an eye on marketing operations.

Long story short, there was not much space left for managing a five-month fundraising process.

Thankfully, we were well prepared. Working as an external M&A banker means having one aim and focus during the project: close the deal successfully and achieve the highest value for your client.

Teams without any experience in fundraising and managing investor expectations should look for external help if they do not have a dedicated fundraising person.

This can be an advisory/investment banking company or a person who will support the CEO during the entire process.

While many founders and investors claim there is no need for external help, let’s just quote one of our former clients who was sure that he will be able to sell his company on his own.

“Fu**ing great that you guys were here, I would never have expected so much effort to sell a startup”.

As stated, especially with growing business and funding rounds, it gets more complicated.

Spending money for advisors or additional stuff sounds uneconomic, but having someone who is managing the process, acts as the intermediate between the Founder and the investors helps the company save time and focus on operations. It also makes it easier to build and defend the valuation and achieve a great value for the company.

A good hire will normally bring in more value than the paycheck.

Of course, there are rules for finding the right person/company. It probably won’t make sense to hire Goldman Sachs (unless the company is named Snapchat).

 

Also Read: Listen Up: Lean Startup Machine mentors offer advice

Plus, make sure the person fits the company sector. An agriculture production business should now hire a digital expert. Do the research and approach people/companies with experience in correct area.

This is especially true for fast-growing tech- and digital companies. The person needs a deep-understanding of digital drivers — so someone who worked for 30 years within the old economy will probably have difficulties understanding and adapting to today’s always-changing value-drivers.

Look for the best-fit

Industry knowledge, speed and professional execution are key factors towards keep the company on the growth path while raising funds.

Today’s modern M&A advisors are lean and have adapted their business models to startups and young tech companies, which make them more interesting and, of course, more affordable than big banks with outdated structures.

The rules for hiring a dedicated fundraising expert who could become the CFO is the same as for M&A advisors: look for someone who understands your business and who fits into a startup culture!

Finally, don’t be shy to talk to advisors, M&A specialists and potential CFOs — they are humans too!

I’m happy to get in touch with you and chat so do not hesitate to drop me a line.

Link to my e27 profile: https://e27.co/martino

Photo courtesy of Gratisography.

The post Concrete advice for raising money, straight from an M&A specialist appeared first on e27.

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