More Than The PowerPoint

Many companies and their leadership teams believe that raising funds is all about the presentation to potential investors. It is that and much more. The first step in raising funds is to understand the process – including what constitutes a securities transaction and what companies can and cannot do and say.

The process of raising funds begins months before the funding is needed. The internal operations of the business, financial records, and a plan for use of funds need to be developed before you making the first pitch.

Develop Your Pitch with Due Diligence in Mind

The majority of experienced, potential investors will undertake a due diligence process with your company before they write a check. For companies unfamiliar with the due diligence term and process, it works something like this. A company approaches an individual or group of investors with an opportunity. This contact typically comes as, or is closely followed-by, a business plan, prospectus, or private placement memorandum or “book” (also called the pitch book). This “book” contains information on everything from the company’s product/service information to information on markets, strategy, competition, financial (past and projected), management experience, and many more topics. Included with the package is an executive summary, which may be all a potential investor reads of your proposal.

Pitch Perfect, Catch the Investor

Once a potential investor expresses interests, then the company provides information on the type, size, and so on of the investment elements. If still interested, the investor then proceeds to validate the information provided. This validation will typically include a review of audited financial statements, analysis of market potential, and an evaluation of the company’s management capability. Depending on the parties involved and the complexity of the investment, this process can take months to complete.

The savvy company prepares for the due diligence process before seeking funding.  Being prepared can significantly reduce the length of time it takes to close a deal with investors. By having all the elements available and having the financials in good order, the business can provide relevant information promptly. The company seeking investors without adequate preparation risks losing the investor you are talking to as well as opportunities to meet with other investors. Always keep in mind that the investor community is like any other: people talk to each other! Be thoroughly prepared before every presentation or you may not get another opportunity.

Frequently Asked Questions

Making the pitch to investors means having answers to some frequently asked questions:

  • What are you selling?
  • Who is buying?
  • Why would they buy from you?
  • At what price are they buying from you?
  • Is there a profit in that price?
  • Who is your competition?
  • How do investors make money (exit)?
  • What are the growth potential and plan?
  • Who is running the company?
  • How experienced is the leadership team?
  • What do you intend to do with the money you raise?
  • Will you need more money or is this it?

There are many other questions which will need answers that relate to the operations and capabilities of the business. When you begin your hunt for investors, know that the process takes time. It takes honing your presentation and pitch into a package that sells. It also means that the business is ready for “due diligence,” opening the books and operations to examination by potential investors.

Due Diligence – Matching the Pitch to Reality

During the due diligence process, the investor verifies the story they heard is viable and matches with what your business records. Furthermore, they confirm the assets and opportunities being presented don’t have undisclosed issues – contract issues, lawsuits, patent and intellectual property ownership issues, and so on.

The presentation and pitch are certainly the most visible aspects of seeking investors. There is, however, so much more to the process. Take the time to get prepared. Investment occurs where opportunity meets preparation.

So start preparing to seek investment at least six months before you think you need to. Many deals take at least six months to come to fruition once the deal begins. Finding the right deal may take additional time and effort.

Pitch Timing

Keep in mind that the best time to seek out funding, whether it is loans or investors, is before you need it. When you still have money in the bank, you have options and the ability to negotiate better terms and protect your interests. If you think you will need more money in a year, start the process today,  begin pulling together the business plan and documents you would put in front of an investor. Put yourself and your team on the path to getting investment before it becomes a do-or-die situation.

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