Investment Round Best Practice
How to prepare for investment rounds?
In this week’s newsletter Dragon Argent Commercial Strategy Advisor & Chief Executive Officer James Taylor had a look at the recent shift in the startup business funding landscape that has taken place throughout the first half of 2022. More importantly, we are going to offer some guidance on how founders can insulate themselves from the increasingly challenging environment.
Context
In 2021, the UK Digital Economy Council reported that the UK tech sector not only attracted record levels of venture capital investment of £29.4bn, but experienced a significant uplift of 2.3x that recorded in 2020. It is against this backdrop that the landscape has shifted in 2022.
This week, The Times reported that the Enterprise Investment Schemes (EIS), which offer huge tax breaks to investors to back early-stage businesses, mainly in sectors involving software and technology, have had a 33 per cent drop in investment since March. The wider social and economic factors that have prompted this drop are clear. The question for founders is, what can we do to protect ourselves?
Y Combinator
If you were to follow Y Combinators recent advice to their portfolio companies, it would be to plan for the worst. Y Combinator is possibly the most prestigious accelerator program globally, whose alumni include Dropbox, Coinbase, Airbnb and Reddit. They released a guidance note to their founders last week sharing their belief that the next 12 months will see the peak of an economic downturn and encouraging startups to cut costs and extend cash runways.
How to raise funds for your startup business?
If raising money were to form part of a startups short- or medium-term plan, Y Combinator is suggesting that it will be increasingly difficult to do so. Therefore, founders will have to use absolute best practice strategy to successfully raise. From Dragon Argent’s startup advisors point of view, some of the fundamentals include:
How to prepare for funding rounds?
Corporate Documentation: Ensure your accounts, legal fillings, employment contracts and other key documents are updated and appropriately filed so they can be easily found and referenced. Investors are going to do due diligence and not having your house in order will slow things down.
Website & Marketing Materials: One of the first things an interested investor is going to do is look at your website, LinkedIn, Twitter, or other marketing materials in the public domain. Make sure these are up to date and reflect your investor pack so there aren’t discrepancies that need to be explained.
Market News and Reports: Investors will expect you to be current with news in your market. Make sure you are up to date so you can discuss recent developments. This will also help you identify potential funders who’ve been active in your sector.
Plan Diaries: Plan to have critical members of your team available as much as possible through the fundraising process. Sometimes absences can’t be avoided, but if you know about them in advance they can be managed.
Documents required for funding rounds
There are some critical documents that you need to have in place before even considering reaching out to investors. They are going to be the very first thing that an investor asks for if you pique their interest and without them, you may fall at the first hurdle.
Financial Model: When building your financial model, bear in mind you are never going to create something perfect. There are too many variables. Your obligation is to do your best by taking what you know and honestly forecasting how you think things will turnout. Key tips include:
Make sensible, commercial assumptions
Understand your business’s key commercial drivers
Tie the model in with the narrative of your deck
Include your P&L, balance sheet, cashflow statement and some commentary
Presentation Deck: It’s important to understand the purpose of a pitch deck. You are trying to convey the story of your business and the story of you as a founder in an engaging, easy to digest manner. If you think of your pitch deck as a vehicle through which to deliver a concise, impactful, and linear story, then that will inform everything that follows. Dragon Argent has a best practice pitch deck template which you can access here.
Step Three: Go to Market
The final stage is to develop a plan to reach out to appropriate potential investors based on your stage and ticket size.
Pre-Seed: Are you looking for funding to simply start your business? This is a pre-seed stage and most often, friends and family supply the investment to get a founder’s idea off the ground.
Seed: Are you looking to prove your product market fit, build a MVP and engage with your first customers? Then you’re looking at seed stage investment and it’s likely that angel investors or crowd funding platforms are going to be your most likely source of investment.
Series A: Have you proven the commercial viability of your business model and secured regular, repeatable revenue and need investment to take advantage of the full potential of your business and scale exponentially? Then its most likely your investment will come from a VC fund who focus on series A funding.
Once you are clear about your stage and the investment required, then it’s time to go to market and start engaging with investors! If you would like to discuss your investment strategy or the materials needed to engage external investors, schedule a discovery call with Dragon Argent as we'd be delighted to help make 2022 a year of growth for your business.
If you would like to discuss about SEIS or EIS advance assurance application or schemes on an upcoming funding round for your business, contact Dragon Argent today to discuss eligibility and how to best manage the transaction.
Schedule a discovery call with one of our corporate solicitors or commercial strategy advisor today.
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