How to prepare yourself for raising private equity or venture capital funding?

Generally speaking, the process of raising private equity or venture capital funding can be split into 3 different stages.

1) Preparation before approaching investors
2) Interaction with investors
3) Post-term sheet closures

Below are the steps that need to be followed:

Step 1: Define funding goal – It’s important that the founders understand and clearly define the goals that they have for raising these funds. You should ask questions like- What is the deal you are looking for? What is the amount that you need to execute your plans? What percentage of your business you are willing to part with? Are you looking for mentorship or only funds, or both? The first step in this process is to define what is the goal and what parameters will ensure a successful fund raise.

Step 2: Prepare business details – Your detailed business plan needs to be put on paper so that it can be presented to the investors. It is important to research, document, project, and justify the numbers. It’s also important to not only understand the business in detail but also be aware of the market, the potential, competitors, market strategy and a lot more.

Step 3: Create a pitch – It’s important that you don’t falter during the pitch to the investors and make a pitch that is difficult to refuse. It is important to practice what you’ll speak and ensure you cover all the important points. So, practicing the pitch is the key here.

Step 4: Find investors – It’s important that you research on the investors you would
approach. It’s crucial to understand the investors who are active in the same space, who will look at investment at the current stage of the company, etc. It’s important that the right set of  investors are approached to get a faster and more efficient turnaround.

Step 5: Organise meetings – It’s important to fix meetings with the potential investors.
Interaction is the key to getting investors interested. Try to fix as many meetings as possible with potential investors so as to increase your chances of getting a good deal.

Step 6: Facilitate the due diligence (DD) process – Once you have landed a term sheet from an investor, they would initiate a due diligence process to verify the claims as well as toensure compliance with various laws, rules, etc. It’s important that you keep everything ready in a virtual data room and promptly respond to all queries raised by the DD team. As per stats, 47% of deals fall through at the DD stage, hence its extremely important that you have all documents and responses in place.

Step 7: Negotiate the agreement – It is of utmost importance that the agreement entered is fair to both, the investor and the investee. It’s extremely critical to appoint a good law firm who can represent your side properly and ensure that it’s a balanced agreement.

Once the agreement is signed and all compliance completed in respect to various laws, rules, etc, then the funds will be transferred to the company account as per the terms of the agreement.

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