If you are a founder about to fundraise, you may be wondering exactly what you need to be prepared to engage and achieve investor money. We have boiled down the five main components that are absolutely essential to executing your fundraise and gaining investor partnership.
Imagine your fundraise as a five course meal. Each course aims to effortlessly transition into the next, carefully measuring appetite and executing flavors at the perfect moment. Your fundraise should similarly walk investors through a carefully strategized journey, at first to pique their interest, and then to close the deal. We will discuss (1) the tear sheet, (2) the pitch deck, (3) the financial model, (4) the cap table, and (5) the data room as a five step checklist to ensure your company approaches the fundraise process with complete confidence.
1.) Tear Sheet - The Amuse Bouche
Purpose: Whet investor appetite and secure the next meeting
The tear sheet, otherwise known as fact sheet, should be a visually engaging document with high-level information on your company, team, and basic data. This document serves as a teaser for your pitch deck, and should not reveal extensive data or information that may raise questions for the investors (Carta). Instead, the tear sheet should pique their interest and provide context for your company.
Founders should generally send the tear sheet via email before walking them through a pitch deck. Investors will not send you away for providing too little information. The tear sheet follows shortly after discovery and introduction - the opportunity for detail and questions will come later.
To jumpstart your tear sheet, download a free template at Carta
2.) Pitch Deck - The Appetizer
Purpose: Showcase your company and provide a brief overview
Much like the tear sheet, your pitch deck should be beautifully designed and take a high-level approach. The pitch deck shares the story of your company, the problem you are solving, and a brief overview of strategy and traction. Investors should walk away from your pitch deck knowing (1) who you are, (2) what you’re doing, and (3) why you’re doing it. Investors have a short attention span and you need to capture it immediately. Within the first few slides, ensure investors can grasp exactly what your company does (Sequoia Capital).
Use these foundations as your guide:
Purpose or mission
The problem you solve
The solution you provide
Why now?
Market size (bottoms up approach)
Competition
Product
Business model
Team
Financial roadmap and milestones
Although the pitch deck should be short, it may be the first in-person meeting with investors (or virtual meeting, #COVID19). As such, it is critical your slides are well-designed and perfectly polished. If you are not a graphic designer, consider hiring an expert freelancer on Fiverr or using a professional pitch deck software, like Slidebean.
Your slides should not only look beautiful, but contain thoughtfully selected data highlights. Give investors a reason to continue the conversation. These highlights should clearly indicate the work you have done so far and the work you plan to do; but do not reveal too much information at this stage. Remember, this is only the appetizer, not the main course. Instead, focus on your roadmap for the future by proving traction and future milestones. Check out this article from Medium on creating the perfect pitch deck for a more thorough walkthrough: “The Perfect Pitch Deck Designed by a VC.”
3.) Financial Model - The Entree
Purpose: Showcase business potential and share growth plans
Now we dive into the true meat and potatoes of your business. Your pitch deck engaged investors and now they need a full spread of data to decide whether or not to invest. In the eyes of an investor, the financial model separates founders with serious expertise from the amateurs. While you do not need to be a serial entrepreneur to gain investors, you do need a financial model that proves you understand exactly where the business stands and exactly how you plan to grow.
Your financial model should clearly outline individual growth strategies for your company and define how you plan to measure success. To learn more, check out our three part blog series on building a financial model (Growth Plan, Revenue and Expense Plan, Capitalization Plan). If you’re not a CFO, consider using a financial forecasting software, like Forecastr to build a full financial model with a beautiful dashboard, beyond the boundaries of Excel. You should be able to walk investors through your financial model to convey full transparency. Ensure your model is clean and well polished before presentation, or you may lose investor interest.
4.) Cap Table - The Dessert
Purpose: Detail ownership of the company and show what investors are buying into
At this point, investors have read your tear sheet, engaged in your pitch deck, and studied your financial model. They clearly understand who you are and your company’s plan to grow. However, investors need to understand in detail who owns what at each stage of the business (Hubspot). The cap table charts your company's securities, how much investors paid for them, and corresponding percentage of ownership in your company. Just like the previous three elements, ensure your cap table is clear-cut and polished. Do not show investors a messy cap table. Excel can prove cumbersome to build and risky to use as a source of truth. Consider using a cap table management software, like Carta, to seal the deal with investors.
5.) Data Room - The Kitchen
Purpose: Organize all documents and cut time on due diligence
If you are pursuing a capital raise and going through the due diligence process, you might receive hundreds or thousands of requests to view various company documents. This might include employment agreements, customer contracts, invoices, and more. If you are not prepared for due diligence, this process can take months as you collect and organize documents to send out to investors.
Instead, be proactive and organize all these pertinent documents in one shareable location so, when investors request information, you can simply send the link and move on. Your data room could be a dropbox, google drive, or other shared folder. Ensure the folders are clearly labeled and simple enough for a stranger to understand where to find each piece of information. Check out this screenshot of Forecastr’s data room:
