This is the first follow-on blog to Design Your Investor Approach. Of all the worksheets I will be providing, this is certainly the simplest. There are just a few lines to fill in and not a whole lot to think about. But don’t be fooled into nodding off just yet. There are two essential pieces in this first of three series of Investor Approach worksheets: Preferred Terms and Use of Proceeds. Even if you don’t land squarely on these in raising the capital, you really do need to be conversant and have developed a point of view on each of them.
First off, download Funding Strategy Worksheet I at Investor Readiness Tools | NRPWorld (nrpworldsos.com) by registering for access to the NRP Vault. No hidden gimmicks, no obligation, we would just like to have a way to send you future newsletters and communications.
Once you’ve downloaded the worksheet, you’ll see that the top portion of this one-page form is self-evident: Company name, date, your name and position, and, importantly, your law firm’s name. And then the labeling of the round. Pre-seed, seed, Series A, etc. Even though this seems like a no-brainer and something you will be tempted to skip, it will come in handy as you build your approach and build your data room (a topic for a future blog).
The second portion is equally simply but will require some thought and decision-making. How much will you be raising? You likely already know that, but if you need more precision refer to your financials and projections. This should all be detailed in your business plan. What’s your preferred form: debt or equity? What are the details associated with either? Now is the time – before the heat of battle – to educate yourself on the various forms of early-stage investments; which leads to the first critical aspect of this worksheet – What are your preferred terms?
If your investor(s) holds all the cards, why is it important for you to think through your preferred terms?
First of all, the education you will gain will become priceless down the road. Secondly, your investor(s) will expect you to have a point of view on your terms. And thirdly, this will ultimately become a negotiation and you need to have both a starting position and a backup position in terms of what is acceptable for you, the company and your investors. Work hard to summarize these preferred terms in the brief space allotted on the worksheet.
The second critical aspect to this worksheet is the Use of Proceeds section. It too is purposefully limited in space to force you to be succinct and clear. Just like the amount sought, it too requires you to go back to your business plan to identify the use to which the funds will be put. If your business plan doesn’t provide that kind of information, then you need to re-visit your business plan and make sure it does! Be specific yet brief. Just saying “marketing” doesn’t tell me anything. Saying “build out social media platform” does.
And then finish off this section with a realistic time frame – this includes consideration of when you need the funding (that’s in your control) and when you can get in front of strong investor prospects (the timing is more in your control than the probability of investment). Focus on what you can control.
With this well in hand, it will be time to move on to Worksheet II in the Design Your Investor Approach series – Identifying Investors.
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