Early-stage startup? Here’s how to prepare for your first investment raise

Raising investment can feel like you’re picking your way through crocodile-infested waters, one careful move at a time.

It’s not enough to simply select the best route. You have to engineer every step, carefully checking internal and external factors as you go. Have I understood what they’re looking for? Am I asking for the right amount? Is the market timing right?

Before you start out on your journey, take some time to understand the fundamentals and get them right – you’ll have a much higher chance of success.

Prepare for the process

Before you start approaching investors, understand who focuses on what. Some like pre-revenue startups looking to raise £250k to £500k, others will focus specifically on businesses with more than £1m turnover. Every investor will have his or her own criteria, so it’s hugely important to do your research and save all parties involved a lot of time.

As part of the preparation process, it’s also important to make sure your business won’t suffer while your focus is elsewhere. Fundraising is a time-consuming activity and, while you’ll learn a lot from the process, you need to make sure the business remains on track without you. It’s essential that your financial performance remains on track, so that performance meets investor expectations. Be clear who’s running the everyday business while the top team’s attention is elsewhere.

Create a concise presentation

For your investment presentation, you need to be able to quickly convey your business’ scale, proposition, executive leadership, market differentiation and – something that’s often left out – what you’re asking for. Do a couple of dry runs with people in your network to check reactions and modify accordingly.

Although you can’t include everything in your presentation, make sure you have the relevant numbers to hand too. Growth investors are typically data-hungry, so ensure you have information on things like customer acquisition costs, lifetime value models, customer churn, sales productivity, financial forecast models, competitor overviews and market size.

Don’t fall into the trap of trying to tell investors how much money they’re going to make from investing in your business. Let the potential investors worry about this – they’re the financial experts after all.

Develop a network of investors

A cold call to an investor is far less likely to succeed than an introduction from a trusted party. So fight for that introduction and network hard. Introductions can provide investors with a much quicker insight into your leadership team, product or service and the business in general. It’s also much easier to do business with people you already know and have a relationship with prior to having a commercial need.

It can be dangerous to see investment as a simple transaction – it’s easier to complete a divorce than it is to exit an investment, so you should make sure that you and your investors definitely want to join forces.

Networking can help smooth this process and give you a wealth of insight on which investors are in the market, who might be a good fit for you and who should be avoided.

Consider a “little and often” approach

There’s a scene in HBO’s Silicon Valley where Javeed reflects on his disastrous investment decisions. After angling for the largest amount of money possible at the highest valuation, he makes that realisation that he would have been better with less.

“Huh. I suppose you could argue that it might have been easier to hit more realistic benchmarks and reach cashflow break-even,” he says. “And then we wouldn’t have faced that down-round. And we wouldn’t have had to settle for acquisition. I’d still be CEO. I’d have my job, my kickass house, I’d probably still have my girlfriend… Why didn’t anyone tell me I could take less?”

Rather than pitching for all the money you’ll ever need, consider asking for a smaller amount that will get you to a milestone six months out. It’s an especially helpful approach if you’re still testing out your product or service – you’ll realise if something isn’t working a lot earlier. Then, you’ll have the space to make changes and get back on the right track.

What are your tips for approaching first-time investment? Share your experiences below ?