Startup point of view
Creating a startup from scratch takes a lot of energy, resources, patience amongst other things, such as money, teamwork and overall understanding of how VC/PE industry works. However, making MVP, creating UI/UX and making the app work is one thing, attracting investments from anyone (even from friends) is another.
Raising funds is not a rocket science, but it still takes founders’ precious time. However, over the time financing ecosystem has evolved so much that now it offers plenty of investment structure of any flavor – convertibles, SAFEs, warrants and every possible mixes of those three accompanied by other investment methods, including simple equity investments. Alternatively, startup can just apply for a grant from government or private funds.
This comprehensive guide on how the investment process works (from both startup and PE/VC sides) is designed to optimize founders’ resources, so they can spend more time on pushing their MVP to market and actual operations instead of googling what is a term sheet and how it works. This guide also includes links to market best practice examples of documents or relevant information.
Before any contact with investor is started, founders need to delve into PE/VC lingua not to get lost in all seemingly unknown ocean of words.
Mattermark has a great VC dictionary (see link to the right).
Before contacting any potential PE/VC, angel or any other investor it is highly advisable to have several basic things prepared (let’s call it a checklist):
Preparing high quality materials for investors is crucial. Investors receive hundreds and thousands of investment opportunities so if you don’t have anything to catch the investor’s eye, then all your previous efforts would be useless (unless you plan on bootstrapping all the time). Before approaching any investor, you should have the following info pack:
By this stage you must know that there are numerous financing options including:
You can also visit your country’s PE/VC associations to find local options of financing.
After choosing the most suitable financing option, you need to compile a long list of investors.
If the project passed all first meetings, calls and successfully answered all questions, then you move to the next stage and the following two processes start:
Structuring and DD processes can start simultaneously, but all investors have their own process maps, so some prefer to make DD first and then make the TS, some – the other way around.
The final part of investment process is document drafting, signing and money transfer.