You may have the best idea for your start-up that is bound to be a successful venture. However, raising funds for a start-up is always a challenging task. In this article you can find the key points for fund raising checklist for start ups. Entrepreneurs need funds in their early stages of business for both establishment and to grow and get big.
Meeting with various investors, banks and other institutes and presenting start-up ideas and justifying the funds and capital requirement is a daunting job, especially for the first timers. Entrepreneurs need to have a clear idea of both their present and future needs as they pitch their business plans to get funds. Convincing potential investors is not a piece of cake, no matter how good your business idea may be.
The entrepreneurs need to put across the right numbers and promising bottom-line figures in order to nail down a good investor. Thus, fund- raising for start-ups could be a time taking job which rarely yields the desired results. This could then be too frustrating and may lead to entrepreneurs eventually giving up on their dreams.
To avoid such disappointing setbacks, it’s important for start-ups to have a fund-raising checklist. A checklist simplifies the entire fund-raising process and helps entrepreneurs to prepare well and close their rounds quickly while ensuring that they get the much-needed capital and funds.
1. Identify your fund-raising need:
This is the first item of the fund-raising checklist and involves understanding the basis need of fund raising by answering 2 basic questions namely:
a. Why do you need funds?
It is very important for entrepreneurs and founders of a start-up to reason for their need to raise funds. A start-up may need funds for various reasons, like:
- buying plant and machinery
- setting up their infrastructure and systems
- to enter new market segments
- To invest in new product lines, etc.
Start-ups have huge funds requirements because they need to set foot in the industry and market their product and services aggressively in the initial years. The need for funds is never ending and hence one must carefully understand how they would use the funds, thus making it easy to gain funds from the market and also use them judiciously.
b. How much funds are required?
Once the entrepreneur has identified his needs for funds, it is logical to quantify the need for funds. Usually, start-ups are capitalized on personal funds from savings, loans from friends, relatives, and banks. So, the entrepreneur needs to assess the exact requirement of funds from its investors. This need of funds depends on several factors like:
- size of the company
- stage of business plan
- industry of operation, etc.
A realistic assessment of the exact amount of funds required would help the start-up to obtain funds with more ease.
2. Researching the Investors/ Funding options:
There are several investors in the market, but not every investor is the best fit for your start-up. Hence, entrepreneurs need to conduct market research and understand:
– the various investors available for funding
– their mode of funding and
– how to connect and contact with investors.
There are different investors like banks, institutional investors, angel investors and venture capitalists, to name a few.
Entrepreneurs can also explore financing options by opting for debt-equity mix, if they are willing to forgo a part of their equity to investors who would not only provide them with the much-needed funds but also help them in various decision making and expansion activities.
Once they have narrowed down the type of investor/s are and ranked them as per the preference of investment in the start-up. The entrepreneur and the investor need to set the terms and conditions of the funding including but not limited to;
– the structure of funding
– amount and the periodicity of realizing funds
– rate of interest/ mode of repayment, etc.
And finally, the investors need to be regularly tracked down by following a systematic tracking process. It is important that the start-ups regularly update the investors with the progress of the business during and after every stage of funding. This increases the investor’s confidence which may be of great use to the start-ups, specially to fulfill their future funds requirements.
3. Demonstrate and provide accurate data during the funding round:
After completing the preliminary steps, the most important point is presenting and pitching the data and information to the investors and lure them to investing in the start-up. Investors are very sharp and are always looking out for the right product/ service offerings which have huge potential to scale- up and grow. While putting forward the business-related information and important financial data, the entrepreneur has to ensure that they are backed up with documents and support.
A list of documents and information that are required to be kept handy while interacting with the investors are:
a. Start-up and Business Information:
- Entrepreneurs/ Founders Bio and Company Incorporation Documents
- Organizational Chart with emphasis on the Key personnel/ strong team
- Business Plan
- Product/ Service Demo and its Unique Selling Proposition
- Details of registrations, trademarks, copyrights, patents, etc. (if any)
- Amount of funds required and its uses.
b. Financial Information:
– Current and proposed capital structure
– Profit & Loss account (last 3 years)
– Balance Sheet (last 3 years)
– Cash Flow Statement (last 3 years)
– Sales and Revenue Forecast (Next 3-5 years)
– Tax Returns (last 3 years)
– Average payables and receivables (including debtors aging)
– Key performance indicators like monthly/annually recurring revenues and net recurring revenue
– Market share and market analysis
c. Operational Information:
– Frequency of board/ management meetings
– Sales cycle
– List of contractors, suppliers and customers
– Contract value, terms and conditions (Both customers and suppliers)
– Customer service data, including grievances and redressal
– Adherence to laws and local rules and regulations
It is necessary for entrepreneurs to have an interesting and clear pitch providing all the likely opportunities, solutions to unaddressed problems and ensuring the investors that yours is the business to invest in and it is now the right time to do so.
4. Finalize the investment:
Investors do not take long to make their investments decisions. So, it is wise to stay connected with them by regularly following-up to ensure that the start-up fund-raising deal has gone through. Once the investors show their interest, it is best to get the terms and conditions approved with the help of a legal consultant. Once approved, all parties to the fund-raising deal should sign the documents and close the deal right before they party and celebrate for the successful times ahead.
Do it with Us:
Diligen has a team of experts and professionals who specialize in start-up fundraising and can guide and assist you to create warm and compelling fund-raising pitches. Diligen helps you choose the right investor from their pool of investors and resources.
The financial and legal experts at Diligen help you in preparing various financial reports and help you draft deals with most favorable outcomes. Diligen provides best fund-raising solutions to their clients which are customized as per their business need and is cost -effective at the same time.