Your job as CEO and founder of a growth startup is to convince investors that you can deliver a significant return on investment. Then once they are convinced get their money into your account.
How to convince investors to invest isn’t as complicated as many think. The best way is to have a steady stream of positive news about increasing customer numbers, revenue growth, new strategic partnerships, tech development and enhancements.
This is all supported by a data room which answers all their other questions.
This is what we at Raise would expect to see in a data room:
- Business Plan
- Vision and product/ service details
- Market Opportunity
- Marketing/ Sales Strategy
- Financials & Key Metrics
- Tech Stack
- Investment Summary
- Pitch Deck
Every investor, fund manager and advisor, has different opinion on these. Some hate business plans others expect to see them. Some will only want to see a one pager investment summary while others a pitch deck.
The problem a startup founder faces is that they don’t know what will be expected by the investor they hope to convince. It therefore makes sense to have them all available.
Best approach is not to prepare a single document but a collection of summaries and appendices. These will constantly change, so should be designed to allow editing. Store them in Drop Box, Google Docs, Airtable or create a depository on your website with rights controlled and documents tracked. (there has to be a startup that cracks open the Dataroom market itself, we are yet to find it?)
The investment Summary and Pitch Deck should be prepared with the flexibility to make them bespoke for every potential investor.
All materials should be well branded. They are the first examples of the founder and their team’s work an investor is likely to see. It has to convince that they have the accuracy, attention to detail, professionalism and care that will be needed to execute the vision.
Increasingly Video is being used as a fast way to introduce a startup – it should be used if it’s of a suitable quality to match that of the startup.
An IM (Information Memorandum) allows an entrepreneur to start the negotiation with terms they want to offer to investors. This will be a negotiation and terms may change but the entrepreneur should take the lead and then negotiate.
Once an investor is convinced, the next step is to close the deal. The following documentation is often required for Due Diligence. It won’t necessarily be all needed but should be on file of a well organised business.
- Mems/ Arts and Cap Table.
- Annual accounts ( if available)
- Up to date annual returns.
- SEIS/ EIS Advanced assurance letter from HMRC.
- Assignment of IP
- Founders agreements
- Company Insurance
- Licence agreements for any software and other contracts.
- A Tech Stack.
Good corporate governance dictates that they should always be in place, up to date and accurate.
Having a data room makes it easier to convince someone to invest in a startup.
Not having it available can plant a seed of doubt which is the last thing a start up wants when trying to close a funding round.