What do I need to do to prepare to raise venture capital?

Raising venture capital can be a long and confusing process. Consider the following guidelines as you prepare:

1. Engage the Right Service Providers Early: Savvy entrepreneurs involve qualified attorneys, accountants, and other service providers early in the fundraising process. These professionals can help you ensure that your company and operations are properly set up to avoid any inadvertent red flags that might turn off potential investors. The right legal team will also help you negotiate deal terms that are in line with the current market and your start-up’s long-term goals.   
2. Incorporate as a Delaware C-Corporation: It’s standard practice for companies seeking venture capital to incorporate as C-corporations in Delaware. This structure is often preferred by investors and is typically a prerequisite for securing venture capital. To avoid unexpected delays and clean-up costs, you may want to have an experienced start-up attorney review your company’s legal structure before you start approaching investors. For more detailed insights, refer to “What type of entity should I create?” and “Why should I incorporate as a Delaware Corporation?”
3. Understand Your Financial Needs: Before pitching angel investors or VCs, it’s essential to have a clear understanding of your company’s financial requirements and the specific purpose for raising venture capital. This includes knowing the amount of capital you seek, the type of investment instrument (e.g., preferred stock, convertible promissory notes, SAFEs) and how you plan to utilize the funds (hiring employees/contractors, renting office space, purchasing software or other tools, strategic acquisitions, etc.), and an estimate of how long the funds will last the company (also known as “runway”).
4. Prepare for Due Diligence: Investors will want to examine your company’s legal and financial matters to ensure everything is in order. This may involve reviewing contracts, intellectual property rights, financial statements, tax returns, and corporate structure documents. Accuracy and organization in these areas can enhance investor confidence, while discrepancies or disorganization may raise concerns.
5. Build a Strong Team: Assemble a capable and committed team to help scale your company. Investors often invest in people as much as in business ideas and having a strong team can significantly enhance your chances of securing venture capital.
6. Develop a Solid Business Plan: Create a well-thought-out business plan that outlines your company’s value proposition, market analysis, marketing and sales strategy, and financial projections.
7. Prepare Pitch Materials: Most potential investors will want to review an executive summary and a pitch deck.
   • Elevator Pitch: An elevator pitch is a concise, compelling summary of your start-up’s selling points that can be delivered in the time it takes to ride an elevator: typically around 30 seconds to 2 minutes. It should clearly articulate your business concept, the problem it solves, your target market, and what sets you apart from the competition. A strong elevator pitch is an essential tool for networking events, casual encounters with potential investors, and initial conversations about your business. Practice your pitch until it flows naturally and be prepared to adapt it based on your audience.
   • Executive Summary: This one-to-two-page document should contain the essential elements of your business plan, providing a snapshot that attracts investor attention.
   • Pitch Deck: Your pitch deck may consist of a dozen or more PowerPoint slides and should succinctly present your business idea, market opportunity, competitive advantage, financial projections, and team experience. Once your pitch deck is ready, practice presenting it to family, friends, and trusted advisors to refine your delivery.
8. Research Your Potential Investors: Investors have varying approaches and preferences. Research potential investors to learn about their investment focus, average investment size, typical investment stage, and preferred industries and locations. Aim to identify those with a track record of investing in businesses at a similar stage and within your industry or location.
9. Network Actively: To find investors, you need to engage with your local start-up community. Participate in industry events, start-up competitions, and pitch events, while leveraging your personal and professional networks. Additionally, finding a mentor or adviser who has successfully raised venture capital can provide invaluable guidance, help you avoid common pitfalls, and connect you with potential investors.

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