13 Nov Selecting the right investor
Raising money is a difficult and long process and it does not get easier with each round. The team has to be disciplined, persistent and well-organised when preparing even for a fairly simple fundraise such as raising money from individuals, also known as the angel round.
IT IS NOT JUST ABOUT THE MONEY
That is usually hard to follow through. Fundraising is such a difficult money that many founders, especially first-time founders, are willing to brush everything aside to get started. The ability to open doors and be supportive of your growth is equally important.
AVOID THE PRIMADONNAS
Once someone gives you capital and gets shares into your business, you will be stuck together for the ride. The secondary markets for private venture deals simply do not exist so there is no easy way out if you are stuck next to the wrong passenger. Be very wary of poor attitude during initial meetings. If someone is acting unprofessional or condescending, it is time to blow them off. With all ventures, you will hit a rough patch and the last thing you need is destructive influence that detracts you from getting the job done.
DO YOUR HOMEWORK
The single most powerful way to get insights into what your funders are like is to get references from some of their portfolio companies and other parties they work with. Reputation of the fund is one thing but all these firms are comprised of different individuals so it is important to understand the working style they have. That is not to be underestimated as all major strategic decisions will be vetoed by your investors.
SEEK BIG POCKETS
Even extremely well-funded start-ups can reach the end of their runways very fast. And the first party they are likely to tap into is their existing investors. Well-managed funds in most cases have set some money aside for follow-on investments. They are also likely to lead or underwrite your next round even if the amounts are symbolic. If your existing investors are not prepared to fund your rounds, that sends a bad signal to the market and might have significant impact on fundraising timeline.
INVOLVE A COMPETENT LAWYER
Do not settle just for any lawyer, just because you get along with them. Just like healthcare professionals, the depth of the legal profession requires specialisation. That is especially valid for the tech industry where a lot of the terms would be quite unfamiliar for a traditionally trained lawyer. When it comes to investment contracts, the devil is in the details and terms such as liquidation preferences and caps might present significant surprises to your final payout. Your investors certainly will have very good quality lawyers on their side (and you are very likely to pay for them). So should you as well.
If you need help with your fundraising preparation and management, do not hesitate to get in touch.