Fundraising insights: Preparing to raise

Fundraising is simple; but it is not easy. You simply need to inspire those people who are in a position to back your project that you have a credible team, working on a proven idea, in a rapidly growing market, that can scale to enormous size, with a reasonable chance of success.

Like I said, just because it is simple, does not make it easy.

Key to being successful in hard things is being organised. In this series we are touching on the essentials of architecting and running the process from end-to-end such that you have the best chance of success. Our investment focused series covers investment readiness, preparing to raise (this article), pitch development and storytelling and the process of conducting a fundraising campaign.

In this piece, we cover preparation and getting set up for success:

So to begin at the beginning, getting prepared is formed by understanding your goals, where your project sits among the cohort of comparators and competitors, and who are the right people to talk with. We break this down into Research, and Prospect Development.

Research phase

You need to understand where you are, principal in this is understanding what other companies like you have raised at and how they are positioned.

Competitor and cohort analysis

Research tools like Crunchbase, and Pitchbook if you are a millionaire, are indispensable here. Bear in mind that it is not just competitors that are relevant, but also companies that are occupying a similar position or accessing a similar market.

Having a coherent point of view for any future valuation discussions based on market norms is of particular importance for pre-revenue or early stage companies raising, since before income stream multiples become relevant, comparing your thesis to established business benchmarks is a useful way to demonstrate the potential “if” the thesis is correct.

Identify your fundraising strategy

Key also is use this insight to develop a strategy adapts your customer value proposition to an investor value proposition, based around how your business:

• Is addressing an established market need
• In a market that is likely to grow fast
• Where you have a strong economic engine
• With an effective sales and partnership development pipeline
• Being built by a highly credible team
• And with a reasonable chance of success

Consider each of these points in turn and write out what your position and proof points are

Core outcomes for the research and strategy phase are

• Competitor analysis: comparative valuations, competitor benchmarking
• Fundraising strategy: what are we saying, how are we saying it, what are our key selling points

Investor prospect development

Creating a prospect list

In parallel to creating your fundraising strategy, you should conduct a research phase to identify relevant investors for your proposition. To do this, you can start with Googling, as there are a number of “top lists” out there for your region, or your sector. Crunchbase has excellent search filters which can also be used.

Try search criteria like

• Has invested greater than <£> and less than <£> in sector <x> based in region <y>
• Has more than <a> investments in stage <b>
  

Key to success here, is to create a prospect list of relevant investors who invest in your region, sector and critically, stage. For instance, if you are reading this, you’re likely an early stage founder or team, in which case you need to be looking for ‘angel’, ‘pre-seed’ or ‘seed’ investors. These tend to invest in earlier stage, more speculative ventures, where there is not a proven business model. Series A investors, are looking for businesses with a proven model, and Series B and later will be looking for more established projects looking for “growth funding”. Make sure you’re talking to the right people.

Similarly look at your competitors, and identify who their investors are. Many or most of these wouldn’t invest in your company and can be excluded.

Work in a structured way, create a spreadsheet or Airtable with a few key columns, to form a prospect list; most importantly

• Firm name + URL
• Firm thesis / descriptor
• Principal investment stage
• Name and contact information
• People you know connected (check linkedin for second degree connections)
• The URL of any application form

You want to end up with at least 50 names, prioritised into a top 10, a top 30 and a list of others.‍

Outreach plan

Creating an outreach plan is next. The ideal scenario is you manage a process where you maintain the maximum negotiating leverage. This is quite hard to achieve, but a great way to NOT do it is to contact a few potential investors a week forever. Your deal will get old quickly and each investor has unlimited time to decide, instead you need to do your best to manage ‘a process’.

Test list

To do this you have your outreach list researched above. From this list you want to select a test group, perhaps 5-10 individuals that you are reasonably confident that you can get a meeting with. This is your test list, use these first few meetings to assess what feedback you can get.

Activation phase

Following on from the test phase, you should then plan to outreach to the remainder of your key list the top 30 or 40 contacts, using whatever introductions you can and with a direct approach where you can’t. With the right sort of outreach email and prepared material the initial meeting is not as hard as you might think. More on that below.

Core outcomes of the prospect development phase are:

• Prospect list
• Outreach plan

Read the other articles in this series

• Investment readiness
• Preparing to raise
• Pitch development and storytelling
• Conducting a fundraising campaign (coming soon)