When working for a startup or scale-up, a large a part of the finance leader’s role is helping the founder run successful fundraising campaigns. Much of the preparation involves raising money, which I’ll now describe, starting with the vital communication between the founder and the finance leader.
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Founder’s Calendar
Companies raise capital to start a business, develop products or services, or grow a company – anything to achieve business goals.
There are several aspects regarding the timing of fundraising and ultimately exit. Talk to the founder about his or her current thoughts (and management’s thoughts) about the timing of a potential exit.
No doubt their exit goal will change over time, but it’s good to know when they need to leave the company as this may help prepare the company for exit. Some founders want to grow their business quickly, exit it, and move on to the next enterprise. Others take a slower and more measured approach. Understanding this may change how you propose to provide liquidity.
As a part of these discussions, it is vital to understand the estimated fundraising time-frame. What goals does the founder want to achieve before the next fundraising and does the current money flow forecast allow for this? Preparing for a fundraiser can take many months, and it is best to prepare for a fundraiser with minimal effort once you have the basics in place, particularly good reporting and a working budget model.
An acquisition or initial public offering can take one to two years, so preparations are intense. Ideally, you wish as many notifications as possible.
Preparation for collection
Fundraising can take anywhere from three months (often just for a small fundraiser or working with existing investors) to eighteen months. In 2021, six months was considered a good time-frame, but now I see it getting closer to nine to twelve months, and sometimes even longer.
Because fundraising takes a very long time, timing is of the essence and there are several vital issues to consider, including:
- Preparation time
- Cash runway
- Leadership Responsibilities
- Communication with investors
- Investor research
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Preparation time
You need to make sure the funds are sound, the KPIs are defined and aligned, and the unit economics make sense. You also need to prepare for the fundraising itself. This includes presentation, data room (see below) and storytelling: what do the numbers say? What has the company’s journey been so far and where does it plan to go? Stories are easier to understand and more interesting.
Because it involves a lot of labor, I often have a potential fundraiser on my mind all the time. If management reports are prepared with potential investors in mind, the balance sheet is at all times reconciled and clean, KPIs are at all times reviewed, adjustments are not reserved for year-end, and profits and losses show the same trading history as the business. There is then less work to do when a company decides to fundraise, and you may get into fundraising mode much faster.
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Cash runway
Ideally, you would like enough money to last you at least as long as the fundraising process in the worst case scenario – 12 months plus some buffer. Ideally I might say 18 months. I understand that almost all startups I work with leave much less time for the fundraising process and you would like to work through this decision.
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Leadership Responsibilities
Once a company begins the fundraising process, many of its leaders can be engaged and focused on fundraising. That’s why it’s value having a plan for who will lead the company when the leaders – likely the founder and you – are tied together.
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Communication with investors
When preparing for an investor, it is at all times value taking the founder’s time to talk to investors. A founder should at all times be in fundraising mode. Potential investors can offer the founder suggestions on why they think the company is a good investment (or not). When the fundraising process begins, it’s easier for a founder to reach warm leads than cold ones.
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Investor research
Prepare a list of potential investors and discover what each of them can offer, not only financially, but also thanks to their experience, skills and network of contacts. Consider who wants to be the lead investor and who they need on the board. Start with the least favorable investors and work up to the favorites. By organizing it this manner, the offer can be ready before the company reaches its preferred investors.
Helping a startup successfully raise funds is a huge a part of a finance leader’s role. This is to make sure that the company can proceed to grow, create products or services, and maintain its business.
By maintaining clean financials, easy and easy-to-understand reports that tell a good story, and maintaining control over money flow forecasting, a company can remain ready to make the most of any fundraising opportunities that arise.
A well-planned fundraising approach not only increases the likelihood of success, but also lays the foundation for a smoother path to long-term growth and a successful exit.
Financial Leadership Essentials: How to Become the CFO of a Startup or Scaleup
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