How To Raise Impact Capital Successfully

Most founders need assistance to understand which resources are essential for a successful capital raise, and which exercises need to be carried out and when. This seems to be true regardless of whether founders are just starting out, or recently raised their last round. This is because founders are always stepping up to meet the due diligence of new investors who are more exigent than the investors encountered in the previous round. The following are the 6 most important subject areas for your attention before you can safely proceed towards a successful raise:

1. Financial Model. This is one of the earliest steps a founder should carry out, even before producing a pitch deck. If you cannot make the business work economically and financially, there is no point wasting weeks/months building a deck and a team. Create a detailed financial plan that: (a) maps out all your fixed and variable expenses; (b) maps out all your revenue streams and sales forecasts and your resulting revenue projections; and (c) shows the resulting cash-flow month-to-month over at least the next 3 years. A good financial model will help you recognise which parts of your business are more hassle than they’re worth, and which lines of business (and resulting revenue streams) it will be prudent to eliminate. Your financial model should also tell you the amount of capital you will need to proceed safely. Investors do not like vagueness: don’t ‘guestimate’ costs for all your different cost items or use whole round numbers. Call up suppliers and get proper quotations. If you fail to do the research to figure out the actual costs, you will be unable to provide clarity to investors, and they will notice. Your financial model will also tell you the valuation of your company. This is an especially important piece of information that cannot be calculated without a financial model. Once your model is complete, prepare a detailed but concise write-up setting out how you will use the funds raised and how they will contribute to your company’s growth and success. Set realistic expectations for the potential return on investment and timeline for achieving profitability. And remember: a simple one-tab Excel spreadsheet might be okay if you’re raising a few thousand (or trying to satisfy your incubator course director) but once you begin courting professional investors you need to start thinking about hiring a financial modeler.
2. Bulletproof Team. Most investors and advisors will agree that your team is the single most important aspect of your business. As the saying goes: “A good team can save a bad company, but a bad team cannot save anything.” Build nothing less than a ‘dream team’ of exceptional professionals with relevant experience and expertise in your specific sector and industry vertical. Be extremely discerning; it is no good hiring a sales director with 30 years’ experience in medical instruments, if you are a software company. Do not hire just anyone simply because they’re sharp, passionate and available. Be patient and play the long game to acquire the best possible team of mission-aligned experts you can find. Take the benefits of diversity seriously from the get-go. Numerous studies, statistics and common sense all dictate a company benefits hugely from balanced gender energies as well as hiring across races, cultures, backgrounds and other diversity factors. Some investors will not invest in a company that has only 1 founder. This is because, in the event of the founder’s incapacitation, there is no one senior with enough deep knowledge of the business to step into the founder’s shoes. Also, single founders are good at avoiding accountability and have few people who are able to keep them in check. Develop a strong advisory board and/or board of directors to provide guidance and support and to hold you accountable. If you are relatively new to raising capital, the very last thing you need is unmitigated unilateral authority and zero guard rails. Create a strong company culture that values transparency, accountability, and collaboration. As the saying goes: “Culture beats strategy every day of the week.”
3. Compelling Narrative. Develop a compelling story about your company’s mission, vision, and impact on the market. Be prepared to be vulnerable and authentically share your personal story and passion for your business with prospective investors. Investors (like all humans) care more about authenticity than illusions of perfection. Do not underestimate this. If you have been to prison, say so, and describe how the experience inspired your further development. Make sure you have completed a Value Proposition Canvas and design your service offering from that, in that order. Figure out your vision, values, mission and massive transformative purpose at the very beginning. This will tell you who you are going to be serving. Next, create ‘ideal client personas’ and reach out to suitable matches to conduct interviews with them to gather data about their actual needs, desires and pain points. Demonstrate ‘market fit’ by showing how your product or service solves a problem for your target audience along with evidence that confirms the market actually wants your specific solution. Most investors will especially want to understand the market traction you have already achieved (eg. details of early customer adoption).
4. Data Room. You will need a range of documents in order to secure the trust of potential investors. At the very least this includes an investment deck, a financial model, and an investor agreement. Other useful documents may include a shareholders agreement, finder’s fee agreement, investor FAQs, and a 1- or 2-page investment teaser. Be prepared to submit these to investor due diligence by assembling your documents in a centralised folder to give investors a single place to find everything. Investors will judge the sophistication of your team and your operation by the quality of these documents. If you cut corners to save money, investors will reasonably assume that is your general modus operandi. If you do not have an investment expert to produce these documents internally, you should consider hiring external support from a specialist investment readiness consultancy.
5. Funding Sources. It is essential that mission-driven ventures do not onboard investors who are out of alignment with the impact mission of the business. Doing so can give rise to catastrophic problems down the line. Finding investors that are truly aligned can be a challenge so consider working with an impact-focused fundraising consultant or advisor who can provide guidance and support throughout the process. Get to know the different types of impact investors, including angels, super angels, VCs and strategic investors. You should also understand the difference between ‘mission first’ and ‘profit first’ investors and between SRI-focused and ESG-focused investments. Be persistent and patient throughout the fundraising process, and don’t give up until you find the right investors who align with your vision and can help you achieve your goals. Ideally, you are looking for strategic investors who can provide not only funding but also valuable expertise and resources. Leverage your personal and professional networks to find potential investors. If your reach is limited, consider retaining the support of impact investment specialists who have larger investor networks. Attend industry events and conferences to network with investors in person and practice your pitch in real life. Also be sure to build relationships with investors over time, even before you are actively raising capital. Create a list of suitable potential investors and plan your outreach strategy. You will very likely need to target a few hundred investors to secure a handful few meetings. Investor outreach typically requires a commitment of 30+ hours per week. If you cannot afford to dedicate this time because your business needs your attention elsewhere — and if you do not have team members specialised in investor outreach — consider seeking the support of a specialist investor outreach team.
6. Closing Investors. When pitching and negotiating with investors, be authentic. Do not try to paper over the cracks in your venture. Be fearless and do the exact opposite: be totally transparent and honest with investors about the risks and challenges facing your business. If you have insecurities about the future, communicate what they are. Remember, you are a resonant being and investors will pick up on the insecurity in your voice and body language anyway. Your courageous transparency will be refreshing to them, and they will usually give you feedback to help you plug the holes in your business quicker. You will also need to be confident in your fundraising goals. Create a sense of urgency by setting clear funding goals and deadlines. Most especially, focus on building a long-term relationship with suitable investors, rather than just securing a one-off injection of capital. Set up clear communication channels with investors and provide regular updates on your progress and milestones. And remember to regularly confer with your board and/or advisors and keep them up to date so they can guide you toward the optimal strategy and tactics for your capital raising success.

Are you an impact investor seeking expanded access to follow-on investors to facilitate an exit? Are you an impactful founder with an authentic social/environmental mission seeking impact investment? Do you need a financial model or support to reach true investment readiness? I can provide even more support if you visit me at:

www.ImpactAngel.org | Impact Angel on LinkTree

Build investor networks, raise capital, and communicate authentically with angels, VC and family offices. Understand risk factors, fundraising best practices and how to maximize the probability of positive outcomes.