Get Funding for Your Company
Get funding for your company is an operation that takes time, it generally takes between 6 and 9 months from start to finish. This duration is explained by the succession of steps that will be necessary to raise funds, and by the time that should be allocated to each of these steps.
In this file, Le Coin des Entrepreneurs informs you about the essential steps to raise funds. In practice, many start-ups do not complete this process because they have not found an interested investor.
These investors can be investment banks, venture capital-investment capital funds, business angels, individuals. To convince these investors it will be necessary to present them with a carefully prepared business plan.
Which companies are eligible?
The first difficulty for a startup is to precisely identify its needs, then to correlate them with its growth potential. One of the major challenges is to raise enough money to develop quickly, while requesting the lowest possible sum so that the founding partners retain control of the structure. A very precise costing is therefore absolutely necessary to find this balance.
Please note: statistically, only 10% startup fundraisers is successful, and not always in the amount initially planned. Finding investors and convincing them often requires – and beforehand – a solid network.
Raising funds is also an activity that takes time and which prevents, over a more or less long period, to devote oneself exclusively to the concrete development of the activity: this is why the presence of advice is decisive.
Steps to Get funding for your company
Navigating the journey to secure funding for your company involves several strategic steps that are vital for its growth and success, as follows:
1. The estimate of the amount to be raised
The starting point of a fundraiser corresponds to the need to find financing to continue the development of the company. In relation to this, the first question that logically arises is the following: what is the amount to be raised?
To accomplish this step, it is necessary to rely on the business plan and to make a projection of cash requirements for the next two years. It is necessary to budget all the expenses planned to accomplish the next steps planned for the development of the company (research and development, recruitment, customer acquisition, opening of points of sale, etc.), then estimate the financing that will be necessary to mobilize.
The projections made in the business plan therefore make it possible to estimate the amount to be raised. Given the average time needed to fundraise (6 to 9 months), it is necessary to seek funding over a period of 24 months ideally. Otherwise, the company will be systematically looking for funds.
2. The valuation of the project or the start-up
The second step, which is also very important, corresponds to the valuation of the project (if the company has not yet been created) or of the start-up. The stakes are high, because the relationship between the amount to be raised and the valuation will determine the extent of the participation of investors.
The task is complex, given that the usual methods of valuation are rather reserved for traditional companies. Indeed, we cannot estimate the value of a new start-up on the basis of its turnover, on its last three balance sheets or by a comparative approach.
The valuation here will depend on multiple factors: stage of progress of the start-up, product or service developed, degree of innovation, positioning in relation to competitors, size of the targeted market, revenue prospects. An investor aims to realize a capital gain through his investment. The challenge is to find the middle ground:
- If the valuation is too high, he will not commit, because he will not be able to achieve his goal.
- If the valuation is too low, the founders will experience too much dilution.
3. Preparation (business plan, pitch, executive summary)
Before embarking on the search for investors, it is necessary to prepare several documents:
To be successful, these documents must respect certain standards and be constructed with a view to achieving their objective.
The business plan
This document corresponds to the project plan and often comprises more than twenty pages. It makes it possible to explain concretely what the project consists of and on which assumptions it is based. If you need more information, we invite you to consult this guide: the business plan.
The business plan ends with a financial study (the financial forecast), which includes an income statement, a financing plan and a monthly cash budget.
Purpose of the business plan: present the project in detail for interested investors who want to know more about the project.
This second document is a quick presentation of the project that will be used during the first meeting with an investor. It brings together essential information about the project to make investors want to know more. Before analyzing the business plan in detail, an investor is interested in the pitch (and its presentation). A pitch must:
- make about ten pages,
- be built in the form of slides,
- can be presented in minutes.
Objective of the pitch: support for presenting the project during the first exchange with investors.
The executive summary
This last document corresponds to a summary of the business plan and the pitch. It fits on a single page or two maximum. The executive summary includes all the key elements of the business plan and is used to attract investors. Logically, it is easier to write this document after having developed the business plan and the pitch.
To succeed in your fundraising campaign, you have to be convincing about the project as well as the team and show that there is strong development potential that needs a simple leverage effect.
You have to know your “pitch” in one, three and ten minutes at your fingertips, pay attention to the presentation of your “slides” and your “Executive summary”.
Objective of the executive summary: to be invited by investors to pitch the project.
4. Search for investors and exchanges
When the first elements are prepared: business plan, pitch, executive summary, valuation of the start-up or project and estimate of the amount to be raised, the founders can start their search for investors.
First of all, it is necessary to target the investors to solicit by establishing their profile. Investors are classified in particular:
- By type, depending on the amount to be raised and the stage of the company: More explanation here;
- By sector of activity, according to the centers of interest of investors;
- By objective: simply to invest with a view to realizing added value, or also to provide additional contribution to the project (contribution of skills, contribution of a network, assistance in project management, etc.).
- Once the profile of the right investor is established, the founders will have to conduct their research and make contact. Most of the time, an investor explains on his website the procedure to follow to apply.
If an investor is interested, a first meeting will be proposed to pitch the project (quick presentation), and possibly to then have a question-and-answer session for which you must prepare. Then, several other meetings may follow one another to deepen the exchanges. The convinced investor will confirm his interest in a letter of intent.
5. Letter of intent and due diligence
The letter of intent is a document in which an investor confirms his interest in financing the start-up or the project. In this letter, we find the main key elements of the operation: amount of the investment, securities issued in return, schedule of the next steps, planned change in the organization of the company after the lifting… However, even if a letter of intent is a commitment, nothing is won in advance. A letter of intent includes a number of conditions that will allow the investor to withdraw their commitment if they are not met.
To determine if these conditions are met, a heavy procedure will begin: due diligence. In this step, the investor carries out (or has a firm carry out) a complete audit of the company. The audits will cover many subjects: legal aspects, technology, accounting… If the audit goes well, the parties will move on to negotiations.
6. Negotiations and closing
The negotiation phase is the stage during which you will agree on the details of the operation. Here, the parties will have to find an agreement which will generally involve concessions on each side because:
- an investor wants to secure his investment, realize a capital gain and have a say in certain important decisions.
- a founder wants to avoid excessive dilution, to be able to continue to make decisions freely and to limit his commitments to investors.
When the agreement between the founders and the investors is reached, they can proceed to its legal transcription (adaptation of the statutes, shareholder agreement) and to the signing of the documents: the closing.
Once all the documents are signed between the parties, the transaction finally materializes and the funds will be paid into the account of the company. A new stage in the life of the company then begins, with new partners joining the founders.
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