The Phases of Raising Capital
Knowing the intricacies of the capital raising process can often mean the difference between a timely close or oversubscription, versus falling short of your target amount. Investors may put a heavy burden on Company’s management—from generating required due diligence items, term sheet and cap table updates, financial pro formas—all while maintaining the deal cadence. Companies and founders who are not prepared or inexperienced in capital raising may find this hard to balance this while still focusing on revenue growth and operations of the business.
The strategy behind a capital raise can be segmented into three stages, positioning businesses for further growth opportunity and expansion. While there are many different elements within each stage, Newport Advisory Partners has highlighted some key considerations to have at top of mind when starting capital raise efforts.
Preparation may be the most time-consuming and effort-intensive aspect of raising funds. But after outlining the thesis behind the capital raise and developing an investor decision matrix, it’s easier to figure out which investors to target and ask for what you need. Matrix traits include location, strategic and vertical alignment and who is seeking new investment opportunities.
As part of the capital planning process, companies need to have honest discussions regarding total capital requirements, planned use of funds, term sheets language, and dilution analysis of existing investors. Discussions over these should include both executives, current investors and other key stakeholders.
Companies need to also be armed with a comprehensive pitch deck, executive summary, a solid business development and marketing strategy, achievable forecasted revenues, and other relevant documents needed in order to secure that all-important funding.
Narrowing options is key to an efficient raise strategy. By keeping up and building a database of target investors overtime can alleviate time-consuming efforts downstream. This will help identify funds, corporate venture arms, LPs and others who have a track record in the market they are serving.
As you begin soliciting, divide your investor list into communication tranches, typically between four and seven, to be spread out over several weeks. This gives companies the ability to try out messaging and communication approaches, to see what may resonate best with which audiences and tailor subsequent messaging.
Remember to ensure project management protocols are established during targeting, as these will be key to maintaining proper momentum. Prepare an investment timeline, a status dashboard, an email tracking interface and other tools will keep workstream owners accountable and keep the deal process flowing smoothly.
Designating a point person or project manager to manage presentation schedules, NDAs and investor logs, among other things, can be crucial to successful execution. This individual can also ensure that all communications with investors are timely and complete. Having a point person will also allow the core team to continue running the business and keeping operations going during the capital raise process.
When preparing the presentation, doing dry runs prior to the actual presentation can help work out kinks, perfect timing and avoid technical issues. Also, coming up with anticipated questions surrounding the pitch deck, pro forma and the company’s growth strategy and being prepared with answers will show potential investors the company has done its homework
Remember that due diligence is a two-way street. Companies seeking funds need to do their homework on potential investors. Knowing what the investor could bring to the table or how they might support the company’s strategic growth and develop over the coming months and years should be discussion prior to investment. How a potential new investor might work amongst other board members can be an indicator of future successes or challenges.
Take time to celebrate, then take action
Once the ink had dried on the deal, be sure to take time to reflect, debrief and ask for feedback amongst your advisors. But be sure to put your growth plan and use of funds into action, as investors want to see forward momentum after the first 100 days.
Need additional support in your upcoming capital raise?
Newport Advisory Partners can provide you with the strategy and insight you need to be successful and close your round.