After a long year of lockdown, investors are ready to get back into the market and are looking for opportunities to invest. This pent-up demand offers great opportunities for entrepreneurs and startups, especially those who successfully navigated the pandemic.
With funding available, it’s important to be strategic about capital raising to set up your startup for success. Before getting started, entrepreneurs should ask themselves the following questions.
What type of capital do you want?
Is your business at a point where you have achieved success to interest investors? Consider whether you want to raise money in the form of equity, via preferred stock, or in the form of a convertible security such as convertible notes or SAFEs. It’s important to be aware of what appeals to investors. For example, a SAFE may be more attractive to a West Coast investor, while a Midwest VC could be open to other options.
Is your business plan ready?
Before attracting investors, it’s vital to have a comprehensive business plan, an executive summary of the business plan and a presentation of the plan. A good business plan should include a business model, detailed information on your target market, financial projections and assumptions and introduce the team. Financial projects are a key component for investors, as they want to know that your numbers are credible and based on realistic expectations of the market. Your business plan should accurately explain the size of your market and proposed methods of penetration.
Once you have a strong business plan, make sure to prepare your pitch. You will likely need a different pitch for different situations, so it’s wise to practice a 30-second elevator speech, then a slightly longer five-minute version and a 15-minute version for investor meetings that require more detail. Even longer pitches may be necessary for competitions or specific scenarios.
Who do you need on your team?
Good investors invest in the team, so having top talent is critical. You could have a great product and market opportunity, but if they’re not impressed by the team, they will not invest in you. Your team should be cohesive, resilient and be ready and willing to listen to potential investors and take their advice. As a founder, it’s important to be coachable and recognize weaknesses to bring in resources to fill in the gaps. Assess your business needs and be aware of where to enlist the experts, whether that be financial, marketing, legal or other expertise.
When thinking about who to bring on, think about what experience you need in-house as an employee or contractor, as well as what you can outsource and utilize through advisor relationships. Start building a strong network of CPAs, attorneys, board members and potential investors to pull insight from when needed. Investors invest in the team and the management of the organization, so having the right people on board will help take your startup to the next level.
Who do you want to target?
Keep in mind long-term goals of your business and the expertise you’re lacking, not just those who have capital. Strategically target partners and investors in your industry, or a potential acquisition target. A good potential investor should look for long-term ROI and offer potential to scale up and increase capital if more money is needed for future goals. Make a list of investor targets and find out as much information as you can about their current portfolio of investments.
Who is your competition?
Is anyone else offering the same or similar product or service in the market? If you think you have no competition, think again. Even if you don’t have a direct comparison, think of adjacent markets and products or services that your audience is currently buying instead of yours. Make sure you feel confident in your competitive advantage and can explain how your business model differs. A perpetual map can be helpful in your business plan and investor pitch deck to show where you fall amongst your competitors.
Is your capitalization table clean?
A capitalization (cap) table is a report of your equity and capital structure that ties to your balance sheet. Investors will want to see a detailed cap table that is clean and updated. List all investors along with the number of shares they own and date they invested. A good goal for a clean cap table is to bring on the lowest number of key investors possible and give out the least amount of equity possible. As a founder, you want to hold over 51% of the company to have control of the company until you exit.
While now is a great time for startups to attract investment opportunities and raise capital, founders need to be strategic. Being able to confidently answer the questions above will help prepare you for conversations with investors and attract the right funding so your business can grow and thrive.
Anders CPAs + Advisors works with startups and entrepreneurs on their financial needs so they can focus on what they do best. Learn more about the Anders Startup Group to discuss capital raising options for your startup.
Every day at Anders, we serve as a catalyst for those striving to achieve their highest potential, and carry this mentality on to our clients and community. Through a collaborative approach and a combination of tax, audit and advisory services, we help our clients achieve their goals.
As a principal and director of the outsourced CFO practice at Anders, Beth Schulte helps businesses gain a deeper understanding of their current and projected financial condition. She has over 30 years of experience providing high-level accounting and financial analysis to businesses from early-stage startups to large, publicly-traded companies.
