Step 1-: Pitch Deck Development
Your startup’s pitch deck serves as the company’s initial point of contact with prospective investors. You will utilize the pitch deck to showcase your company to prospective investors during the startup fundraising process. The slides used in this pitch deck provide an overview of your company, staff, target market, product, and go-to-market plan. It also contains slides about your business model, income generation strategy, and financial predictions. The purpose of this pitch deck is to pique the enthusiasm of possible investors so that you may continue discussing the possibilities with them. That’s why you should emphasize producing a successful pitch deck. To succeed, your business must make a compelling, well-articulated, and well-researched case for its potential. Rather than a pitch for a product, it would help if you approached this as an investment opportunity for the investor. It describes the problems, how you intend to address them, and why you will succeed where others have failed. All of this is supported by evidence showing how an investor might benefit from investing in this problem.
Step 2-: Investor Selection & Research
Not all angel investors and venture capitalists are interested in the same business. This stage entails research to identify the most suitable investors for your startup. These are excellent tools for identifying and investigating investors. Additionally, you may use LinkedIn to find and contact potential investors. You may think of “potential investors” as anybody willing and able to invest in your starting business.
Step 3-: Introducing Yourself to the investor/ Initiating a Conversation
After establishing a connection with the investor through a mutual connection, you must create a warm introduction to gain access to their email inbox. Herein lies the importance of your email deck. An email deck is a cut-down version of your pitch deck, with no more than ten slides and just the most important aspects. It typically contains less text than the pitch deck itself. Your objective is to present your startup to the investor so they can evaluate it and decide whether or not to invest in your opportunity. Typically, the email deck is concise, well-structured, and straightforward, with a call to action requesting that the investor review and discuss your pitch deck in person. Additionally, you may incorporate a video pitch with your email deck to boost its impact.
Step 4-: Investor’s Meeting and Presentation
This is a significant step in the startup fundraising process since it is the day you meet with the investor and present your business. Before the meeting, you conduct thorough research on
- The investors you’re meeting
- Their portfolio companies
- The domain they’re interested in
- Any other pertinent information?
Typically, the meeting is brief, with 20–30 minutes allotted for the presentation and another 15–20 minutes for questions. It begins with a personal introduction, an explanation of your business plan and its potential, and then an investment proposition. This meeting aims to attract the investor’s attention and secure their commitment to invest in your startup. Typically, negotiations on the investment type, amount, valuation, and equity follow the presentation.
Step 5-: Investment Agreements and Due Diligence
The talks don’t stop with the initial meeting, unless it’s a demo day hosted by an accelerator or incubator, when businesses get to present in front of many investors. Typically, many further meetings are necessary to agree on the investment amount and other crucial aspects. To reach a mutually beneficial agreement, both sides must participate in giving and taking. During the due diligence process, the investment team examines all areas of your startup, including financials, revenue model, competitors, team strength, and even the founders’ previous job history. Upon the successful conclusion of this step, the final negotiations commence. At the pre-term sheet stage, you are expected to understand the investment kind (equity, debt, convertible note, or SAFE), quantity, value, and equitable distribution among the company’s founders. In this case, a competent investment attorney can help you understand the legal ramifications of the investment term sheet and safeguard your interests.
Step 6-: The Term Sheet
A “term sheet” is a contract that outlines the conditions and investment structure. In general, it consists of the following three sorts of terms:
- Economic terms-: This includes details such as vesting, excise period, anti-dilution, valuation, price per share, and the amount of investment.
- Control terms-: These stipulate the shareholder’s rights and responsibilities, protective provisions, board seats, and the drag-along agreement.
- Other terms-: They include, among other things, dividends, rights to redemption, rights to assets, and other rights.
A term sheet is an agreement that is not legally binding, and a more comprehensive due diligence process often follows it. And this ultimately results in the formation of a legally binding agreement, known as the shareholders’ agreement.
Step 7-: Post-Term Sheet Diligence
The Post-Term Sheet Due Diligence is one of the most critical steps of the startup fundraising process. Why? Because the term sheet is just the beginning of your due diligence. Now, the investment team is conducting a more thorough review of your business. This phase is more crucial since it covers several laws, including assessments of employment contracts, intellectual property, business organizational papers, and other commitments.
Additionally, the investor’s attorney becomes engaged at this stage to guarantee that the legal requirements outlined in the term sheet are followed. During this phase, the investor team focuses on the following
- Financial statements and bank statements
- They scrutinize the financial health and market valuation of the startup.
- Background checks
- The investment team evaluates each founder’s history and reputation in the market.
- IP diligence
- Security of the company’s intellectual property.
- Legal due diligence
Depending on the complexity of your business and the amount of information you’re ready to offer, due diligence might span anywhere from a few days to several months.
Step 8-: Round Completion and Fund Transfer
After the completion of due diligence, it is time to conclude the agreement and have the funds sent to your account. Signing the legal paperwork that formalizes the investment and transferring the funds is the last stage.