Monthly Archives: July 2011

How to Raise Venture Capital: Due Diligence and Process Preparation

starting line smallIf you’re following along with our series of posts on the venture capital fundraising process, the next step in the process is to prepare your due diligence material.

This step is often skipped in the fundraising process, but the more you prepare for the offering before starting outreach, the quicker and more seamlessly it can go. However, since many companies desperately need the capital they’re trying to raise, company management often tries to jump the gun here.

One of the best pieces of advice related to raising money is to prepare thoroughly before you make the first call or send the first email.

For instance, it can take several weeks to prepare for due diligence so it is important to start preparation early. Create a virtual data room (VDR) to organize all relevant documents in a way that will make it easy for investors to conduct their due diligence.A VDR can protect the confidentiality of your company’s important data by ensuring that potential investors cannot print, save, or download the documents. Be sure to get all of your documents loaded into the VDR in advance and permissioned properly so that specific groups are able to access only the information you give them permission to see.

Keeping track of the process is also crucial to stay organized and in regular communication with potential investors. If you are not using a banker, you should consider purchasing a deal flow management tool to stay on top of the process.  Sometimes these fundraising could entail outreach to 70+ investors, which is difficult to keep straight without a tool of some kind.

Venture Capital Fundraising: Prepare a Business Plan Presentation

Present your companyIf you’re following along with our series of posts on the venture capital fundraising process, the next step in the process is to prepare a business plan and/or executive summary.

The Executive Summary is the short, non-confidential version of the business plan. It is usually the first document that is sent to prospective investors to attract initial interest in a management presentation. A private placement memorandum (PPM) is a fancy way of saying “business plan.” PPMs are generally prepared as part of a private placement using an agent.

Basically, your company needs to put together a plan for how it plans to make money; what it plans to use the money being raised for, and how it plans to return capital to its investors. Generally these documents are shared under confidentiality agreements, depending on the interest level of the investors and the sector being investigated. Life science companies generally require a CDA/NDA (Confidential Disclosure Agreement/Non-Disclosure Agreement) prior to sharing confidential data, but tech companies do not use this as frequently.

The management presentation is usually a Microsoft PowerPoint® slideshow that management presents to investors. It is usually safe to assume that an entrepreneur will have about an hour for each meeting and that the presentation will be frequently interrupted during the pitch. As such, the presenter’s prepared remarks should last no more than 40 minutes. You should also have an alternate, 20-minute version of your presentation with you in case only half an hour is available for some meetings.

As you prepare for the fundraising presentation, part of the process should be to practice in front of a friendly audience to get pointers and to help revise the message as appropriate. This “friends and family pitch” can be a big help in refining the story.

The management presentation should support the story but the presenter should not simply read from the slides. Visually, the presentation should contain plenty of white space.

The right business plan, well presented, can have a huge impact on your odds of getting funded, so doing this step well is very important.