I’ve been approached many times by founders with their business plans asking me for introductions to other venture capitalists. In most cases I had to say no because the pitch materials were below standard or incomplete.
So what does a complete information package for fundraising look like? Obviously, every company and situation is different. A seed stage company that has no revenues or product yet requires a lot less due diligence than one that is raising a Series B round. However, here are the six things every company should have in some form or fashion before approaching investors:
1. Financial Forecasts
Yes, I know, no one can predict the future, but you do need a five year forecast model with at least the first 24 months on a monthly basis. This forecast needs to be bottom-up. It needs to show how you intend to generate revenues. Please do not make the mistake and say “well, if I only have 2% of the market in year 5, we are a $1bn company”. How? How do you intend to capture this market share? Which marketing and sales channels do you use? Let’s face it, investors are numbers driven. So you need to provide numbers.
2. Capitalization Table
Who are the current shareholders? What type of shares are outstanding? Is there an ESOP? What is the vesting schedule? Anything and everything that will let an investor figure out what the fully diluted picture of the company will be.
3. Pitch Deck
A 15 page presentation of your business. Make sure you stick to the contents investors want to see. There are plenty of good templates on the web, for example from Guy Kawasaki. Please don’t show up with a 40 page book. Investors have the attention span of a 5-year old with ADD. Prepare accordingly.
4. Teaser (Max. 2 Pages)
You want to have a teaser as an off-take from the full pitch deck. It should be used as a door opener. In some cases you may decide to fire off the entire deck immediately, but there are situations where a teaser is more appropriate.
5. Due Diligence Package
Be prepared for anything an investor will want to see before they wire you funds. Have your back office in order and upload important documents to a project data room that you can give investors selected access to. Documents include formation documentation, minutes of board meetings, material contracts and agreements, but also financial information such as historic financials, contact information for your bank, accountant, tax adviser etc. It should also include bios of the management team, your detailed sales and marketing plan, and other documents investors might want to see.
6. Private Placement Memorandum
I decided to make my lawyer friends happy and to include the PPM on this list. Having a PPM does make sure that you are in compliance with Rule 506 of Regulation D of the Federal Securities Law. Drafting a PPM is not a cheap exercise, and founders should budget for this early on. A well written PPM can cost up to $20k or more.
Fundraising is a full-time job, but if you do your homework before you approach investors, you can save valuable time later on in the process. Be prepared.