Are you investment ready?

Raise expected funds

Image Credit: Independent Sector

Investment Readiness — examining the extent to which a company possesses the qualities that make them appropriate for the financing they seek. It is a subjective concept, and the output of these assessments can vary from one individual to another.

In this first of a series of articles, I attempt to identify and share tips which startup entrepreneurs should find useful during fund raising discussions with potential investors. I will leverage on my experience as an analyst with the advantage of being on two opposing sides. One, on working with Nigerian startup technopreneurs to raise money and two, on working with investors to support investment decision making.

Let us start from the very beginning. The most important question — How much do you want to raise?

I sat across the table discussing with a team of co-founders about their business model in a bid to considering their company for a portfolio. After about an hour, I asked the question “How much money will you need?” only to be met with blank stares. ‘Surely, providing a figure should be the easiest thing’,

Image Credit: Eastside Primetimers

It is safe to assume they didn’t want to ask for so little or sound unrealistic. If they had shared a figure, the next question would have touched on the use of the funds.

So here’s my two kobo on this:

1) Do the groundwork before engaging the potential investor. Be prepared. Have reasonable estimates for various cost and expense line items on hand. Do not benchmark your funding requirement on other successful fundraising rounds. Each business is unique.

2) Be clear about what the raise is targeted at achieving. Your raise should speak to what you intend to do with the money, as well as how soon or further in time you expect to burn the cash. For instance, “our monthly burn rate (the rate at which a company is spending its capital on financing overhead expenses) is NGN1.35mln and we anticipate that this raise should see us through the next X months of our operations over which we expect to reach our set milestones.”

3) Do not ask for more than you need. Yes, a little more as a cushion for unforeseen events isn’t a bad idea, but be careful not to ask for more than you can justify.

4) Avoid giving ranges. Be exact. To quote from Brad Feld and Jason Mendelson’s book’ Venture Deals:

“Finally, we don’t believe in ranges in the fundraising process. When someone says they are raising $5 million to $7 million, our first question is: “Is it $5 million or $7 million?” Though it might be more comfortable offering a range in case you can’t get to the high end of it, presumably you want to raise at least the low number. The range makes it appear like you are hedging your bets or that you haven’t thought hard about how much money you actually need to raise. Instead, we always recommend stating that you are raising a specific number, and then, when you have more investor demand than you can handle, you can always raise more.”

P.S. Kindly note that, except where it is clearly stated otherwise, opinions expressed in this article are mine.