Get funded: 5 tips when seeking investment

You’ve developed your tech business and are ready to take on the next stage of growth. But where to start in the quest to secure investment? There are significant funds within the VC market, and although the bar is always high, there are actions you can take to get noticed, be fully prepared, and raise that all-important capital.

Tech-focused investment bank ICON Corporate Finance has closed more than 250 deals for its clients. ICON CEO and Founder Alan Bristow shares five pieces of advice for those preparing for an investment round.

You cannot let the whole organisation be sucked into the funding process. In early-stage tech companies, the lead is usually the CEO and often founder. It is essential to allow the rest of your team to get on with their actual job, ensuring that the business is running effectively and delivering on key milestones.

The fundraising process, with its many twists and turns, can take on a life of its own, and the very business you’re trying to position as successful could start to struggle if your team has taken its eye off the ball in order to focus on the investment process.

Without continued concentration on day-to-day operations, your financial forecasts and key KPIs could end up not meeting the plan, which in turn may affect your valuation and in the worst case, give a VC cold feet.

Potential investors do not cut you any slack for missing key goals and targets because of a focus on the funding process.

It’s worth remembering that raising capital is not a quick process. However long you think it may take, it will likely take longer; allow at least six months between initial engagement with investors and funds hitting the bank. You must therefore make sure you have the financial runway and resources to run and grow your business during this period.

The funding lead must commit time in their schedule to the investment effort. It truly becomes a full-time job and cannot simply fit around existing duties. There are periods of high intensity as you progress through the funding process from initial meetings, deeper dives into the tech/IP and negotiations to indicative offers. Whilst an exhilarating process, it can also be very frustrating as the business goes through scrutiny from potential investors – hide of a rhino is required!

Once you have commitment from investors, expect the legal side of things to take eight to ten weeks, from term sheet to final signing of the investment agreements and other legal docs which form part of closing the investment round. 

Get properly prepared for fundraising by ‘dotting the Is’ and ‘crossing the Ts’ of your data room. From ensuring all the tech/IP documents are properly documented, protected and registered; customer contracts in place; HR issues dealt with; financial forecasts, management accounts and key metrics are up to date and well documented; to offering a clear cap table and incorporation information showing the business exists in the right structure for the investment. All of this groundwork will allow you to accelerate with great confidence into the process.

VCs don’t buy into businesses for these elements, but they may certainly not buy into it if the housekeeping isn’t right. You will be competing with a lot of other companies, so you need to minimise any potential obstacles that could delay or obstruct the funding process.

The business plan is crucial to the investment process. It’s extremely challenging and can be immensely time-consuming. This ‘think to ink’ process will test the entrepreneur/management team on how best to convey what their business is all about and why it is now investment ready.

A common bear trap for many early-stage tech companies is far too heavy a focus on the development of the tech/IP and a lack of detail on the business and how it will build its capability to win in the market. Always remember, investors are not seeking tech; they are seeking tech that can grow into a valuable business and that can grow significant shareholder value.

Also, for investors, investing in early-stage tech is at the highest risk end of the market – but also potentially the highest returns. So, don’t get bogged down with the technological detail; fundamentally you want to sell the financial return to the VC, not the technology itself.

The work on the financial model should also highlight the funding need and how far this funding will get you. There is a well-trodden path of seed, Series A, Series B and for some Series D and E – the reality for many is that the funding process never stops, and every step of the way the business plan has to have clear points of validation or commercial milestones which provide investors with the ongoing confidence that the business remains an ongoing good investment.

Spinning out of the business plan is the punchy one-page executive summary – this is the primary weapon into the VCs and is typically sent ahead of the business plan. It is difficult to get your business to fit on one page but also essential you do.

Investors notoriously have a low attention span and are faced with hundreds of business plans. A red hot one-page teaser can therefore get your business through to a deeper dive. Interest can then escalate fast into request for the business plan, management meetings, product demos, commercial diligence, offers to invest and finally deal closed with your preferred investor.

In VC meetings, keep it simple and clear. If a CEO can’t explain concisely what they are going to do, they probably don’t know themselves. Articulate what problem your tech is solving, how big the addressable market (‘TAM’) is, how you are going to address it, your route into the market, and show a business model with some exciting and credible numbers.

Integrity and honesty are key attributes a VC will look for in a pitch. It’s hard, if not impossible to rebuild trust once lost, so don’t let your nerves draw you into bending the truth or capitulating on strategy when challenged. Believe in your plan and back it up every step of the way with clear market validation.

This validation can manifest itself in many ways from commercial traction, relationships with key ‘go to market’ influencers, calibre of the talent in the team, strategic partners and strength of the revenue model and scalability of the business.

Be ready for anything and don’t be surprised if no one has read your business plan – frustrating as that may be!

Do a debrief with your team after every presentation. It’s vital to have a true assessment of what went well, what didn’t, and which points were raised and need to be addressed for the next meeting.

Finally, once you have selected your preferred investor/s always ensure you stay on top of your game and do not underestimate the rigour of the DD process from HoT’s to deal close.

We all need a bit of luck in business – the hard work you put in makes you lucky – so get lucky!

For more advice on raising investment for your tech business, head to www.iconcorpfin.com or contact Alan at alan@iconcorpfin.com.