Preparing for a startup financing round is, in some sense, like preparing for selling your apartment. You can go about it in two different ways: either you plan ahead and time everything right or you fail to plan and have to do it under pressure. Results vary dramatically depending on which route you take.
As any estate agent would tell you, preparation is everything when it come to selling your house or apartment successfully. Well ahead of time, you make sure it looks good: you make sure the interior design is polished, perhaps even do a little refurbishing, and you have the place cleaned.
You arrange professional-level photographs to be taken of it, and you prepare an appealing copy that highlights what is best about your real estate and why it really is an excellent catch. You consider carefully where and when to place your ad, based on season and ideal buyer profiles.
You probably do all this in partnership with an agent, which you would have carefully chosen, considering your options and their respective pros and cons.
This is the way to go, if you want maximum value from your sale.
The other option is that you fail to do all of this on time. Instead, one day, you wake up to the unpleasant fact that you are running out of time. Perhaps you already bought a new apartment, or perhaps you are moving abroad. Either way you will probably end up with inconsiderate and substandard advertising, rash decisions regarding estate agents, and worst of all: a buyer who is not ready to pay what you expected but you have to take the deal anyway because you are running out of time.
When it comes to startup Series A financing rounds, the lesson to be learned is much the same. Startups tend to underestimate the value of meticulous preparation – and even more so, they tend to underestimate the time required to prepare well. Yet, preparation has a profound impact on the success of the financing round.
As angel investors, we often assume the role of the “estate agent of startups”: we help them prepare for Series A financing rounds.
According to our experience, the ideal timeline usually looks more or less like this:
process from the startup’s viewpoint
A. Preparation phase: 1–2 months
- Ensure the owners are on the same page and have reached a consensus regarding starting a financing round. The decision should not be made by the CEO alone.
- Clean up the financial data and KPIs.
- Structure and polish your Investment Story: Identify your startup’s strengths and create a plan for how to further strengthen them. Identify your startup’s vulnerabilities and create a plan for how to tackle them.
- Create a well-structured Investor Deck and have it reviewed by your mentors.
- Draft a financial plan.
- Make a list of potential investors you will want to approach.
- Make arrangements to streamline the company structure, the Cap Table and other applicable structures.
B. Making contact and organizing meetings: 1–2 months
- First contacts: emails and phone calls
- Follow ups: emails and phone calls
- Organizing joint investor meetings
- Organizing 1 on 1 investor meetings
C. Negotiating: 1–2 months
- Additional meetings with investors
- Answering requests for more information
- Agreeing on the details of the term sheet
- Agreeing on the main details of the shareholder agreement
D. Due diligence (applicable to large-scale cases): 2–3 weeks
E. Signing the deal
F. Closing the round
If you follow a structured timeline like this, you have much better chances of finding the right kind of investor and a good valuation for your startup.
So – don’t wait until you realize the cash is running low. Prepare – plan – and execute!