We learnt about key dynamics to look for in investors, the value of planning and time management, and how to create a compelling narrative. Part two completes the series and continues with more insights on term sheets and how raising Series A may differ from previous rounds.
Getting down to business - the nitty gritty stuff
Term sheets are of utmost importance to the fundraising process. Sifted even goes so far as claiming it is the most important document a founder may ever sign. It outlines the key terms of a deal between the company and potential investors – so what is a good benchmark?
Understandably, each investment experience is different, and this was echoed by our Hub Members. Maya suggests: , “before even putting pen to paper, ensure your vision is aligned with your potential investor, this, at the end of the day, is the most vital aspect before pursuing any further conversations.”.
Pierre strongly emphasised the importance of details - here, more is actually better. This, he reveals, could save you from a hefty, unexpected bill from the lawyers.
Amrit gave us an insight into what to expect in a term sheet:
The amount the investor is willing to invest;
The pre-money valuation;
Key headline terms including the rights that the investor is looking for;
Fees associated with the deal (eg who is paying for what)
Ultimately, the term sheet is a form of negotiation and establishes the basis for the formal relationship you will have with any future investor. Naturally you will want to create beneficial terms for your company, and Pierre suggests using leverage to your advantage such as competing offers, as this can be helpful to tip the negotiations in your favour.
Same same… but different
Your business is the same…. but different. Since raising your seed round your company has taken several steps forward, so this is likely to be reflected in the new fundraising round you’re approaching. Raising Series A compared to previous rounds is also in many ways the same… but different.
Speaking from their own experiences, our Hub Members reveal that the new phase of your business is likely to welcome more scrutiny by potential investors through greater due diligence. Additionally, there may be an increased interest in metrics and growth compared to earlier rounds, something which Maya experienced. Prepare yourself by considering the developments and achievements made over the years to help respond to these questions.
Amrit revealed potential investors may also be interested in speaking with existing customers and partners which could result in delays if you have not already accounted for this in your planning. Remember, planning truly is your best friend to ensure you do not stand there empty-handed mid-way through a raise.
Compared to previous fundraising rounds, Pierre found that aligning existing investors with the terms of the upcoming round (eg equity shares available to new investors and at what valuation) in addition to aligning new investors with the company, added an further step in the process. This could result in longer times before completion compared to earlier rounds where more flexibility was available. Once again, make sure you have planned a long enough runway to adapt to changing situations.
Final tips to take away
As closing remarks, we remind you of the Cher classic, “if I could turn back time” to summarise the main takeaways to keep in mind as you prepare for your Series A, to ensure you have no regrets!
Building your narrative and getting it just right is a process and a challenge many companies experience. It will come – patience is a virtue!
Create as much competitive tension as possible to drive home the end goal and to avoid investors from potentially dragging out the process.
Avoid unexpected lawyers’ fees by agreeing on any fees before-hand.
Find investors that align with your vision.
Sustainability is trending right now – if you are in this space, this is your time. If not, have in mind what you’d like to do in this space in the future.
The deal isn’t done until it’s DONE and the money is in the bank.