Create a capital acquisition strategy |
Prepare answers to the following four questions: How much do you need? When do you need it? From whom do you want it? What compromises will you accept? This is the time to get a startup-savvy attorney if you haven't yet.
Contact the targeted financiers|
Start with the top five of the 10 you put on your list. If you can, get a personal introduction from a friend who knows someone at the financier's firm, or from a contact in your LinkedIn network. This will increase your chances of being moved to the top of the stack. Financiers receive hundreds of business plans per month, and those that are not introduced personally have little chance of either getting financed or getting preferential terms.
Rock the initial meeting |
Use your 20-minute concise and compelling financing pitch. If the financiers are interested and request it, give them your executive summary. If you're looking for an equity investment, don't set a price for your company's stock. Let the investor tell you what he or she thinks it is worth.
If the financiers are still interested after reviewing your executive summary, they'll schedule another meeting with more members of their team. If that goes well, hand over your business plan. Never mail your business plan to an investor you haven't met with yet. Spreading your plan around invites unwanted competition, and why share your trade secrets? Number each plan uniquely in the page footer. Track each copy. In the event your plan gets copied, you'll know who the culprit was.
Secure a lead financier|
This financier does most or all of the due diligence, as well as helps bring others into the deal. The lead drives the process—so get one pronto. The lead can be an angel investor or angel group, a venture capital firm, or a bank in the event that the financing you are doing is a loan. Banks will likely not bring other financiers into the deal.
Set the stock price |
This step is only necessary for equity financings. Setting the stock price occurs through negotiation with the investor and will be outlined in what's called the term sheet, which details the terms of the financing. Investors typically take preferred stock because it comes with certain rights and "preferences" that the common stock does not, and they pay a higher price for it. Preferred stock might start out at $1 per share, while common stock could be 10% of this price. Common stock is what will be offered to your employees. Founders stock (or "sweat equity") is often 1 cent per share. Get help from your startup-savvy attorney in setting the stock price and negotiating an employment agreement and stock-option vesting schedule. Your chief financial officer or controller should be knowledgeable about startup financing structures as well. It's easy to find an interim or part-time CFO or controller. Check with local accounting firms.
|Paper the deal|
. In this step, your attorney "papers" the deal with the appropriate legal contracts, which are executed by both parties. After this, the wire transfer is sent and you are funded. Now the work really begins.
Ready to take your business to the next level? Here's what you need to know and do to land the capital you need
By Christine Comaford-Lynch
To achieve rapid and sustained growth, sooner or later you'll probably have to attract financiers. Let's suppose you've got a terrific business plan and you've honed your 20-minute financing pitch. You've built a great team, too. Now all you need is cash. When taking outside funding—or when determining if you even want to—you'll first need to develop a capital acquisition strategy, which is detailed in the accompanying column. This Playbook explains what to do next.