Proper fundraising preparation is essential to attract the right investors and ensure that the investment will be completed.

In this article, we will briefly explore the main steps a startup should follow to prepare for fundraising.

1. Know your numbers

Before looking for funding, it is important to really understand your business and know all the financial data, all the details about the market, competitors, potential etc.

Analyse the market, competition, and growth prospects. Investors will have questions and will want to see that you know your business and have a clear vision and deep understanding of the market.

2. Determine how much you want to get

Determine the amount you need for your startup. Be very careful how you set the amount you want to raise:

• on the one hand, too little money could be problematic in the future (if you are not able to complete the product or what you set out to achieve with that money, but at the same time you cannot find other investors);
• on the other hand, too much money could make it difficult to find investors; or, even more, it could drive investors away.

At the same time, depending on the amount you need, you will also look for investors. For small amounts (tens of thousands of EUR) you can find angel investors, but for very large amounts (hundreds of thousands of EUR) you will most likely have to look for investment funds.

It is important to have a solid plan and be able to explain how the funding will help your business grow and expand - and more importantly, how you will use the money from the funding. Every investor wants to know how you will use the money they offer you and how they can recover their investment/what benefits they get.

However, often, the reality differs from the plan, no matter how carefully and thoroughly the plan is constructed. When setting the amount, you should consider the worst-case scenario that can help you achieve your goals, and then add a mark-up for any unforeseen events.

3. Establish how many shares you are willing to give up in the company

In other words, it determines the valuation of the company - how much percentage you will give the investor in return for the investment.

Find out what the usual valuations are in your industry, taking into account the level of your startup. For example, talk to other entrepreneurs who have taken investments to see how their companies have been evaluated.

Be very frugal with the percentages you give. Sometimes at the beginning, excited by the potential of the entrepreneurial journey and the fact that you have found an investor, you may be tempted to give a high percentage (shares) in exchange for a smaller amount - in other words, to have a small valuation of the company. However, an initial undervaluation could make it difficult to grow the company and attract new investors (for example, if the founder loses control of the company quite quickly or if the new potential investor does not see a return on the investment due to the very high percentage held by the first investors).

At the same time, when evaluating your company, you should be careful not to overvalue it and deviate from the usual valuations in your industry.

A fair valuation also sends a message of realism and confidence to investors.

4. Strengthen the team

Investors place a high value on the management team.

Make sure you have an experienced and dedicated team with the necessary (and complementary) skills to grow the company. If there are gaps in your team, identify them and take steps to bring in the right people (for example, you may need a CTO).

5. Create presentation materials

Depending on the investor you approach, you may need different materials.

It is not a rule, but in most cases, you should be prepared with both a brief description of your idea/business (the so-called elevator pitch) and a more detailed presentation of it (the so-called pitch deck).

The elevator pitch should briefly outline what problem you want to solve with your product or what opportunity you are considering, what the benefits of the product are, and some examples of the product’s success.

The pitch deck should contain a more detailed description of your business, the problems it solves, your business model, your market analysis, your plan for using the funds you want to raise and your financial projections.

Make sure your pitch deck is visually appealing and easy to understand. Simplicity is often more convincing.

6. Find the right investors

You can look for angel investors, funds, or other sources of funding (e.g., companies that want to expand their business lines by investing in new companies).

Identify the types of investors who are interested in your industry and your startup’s stage of development.

Be prepared to adjust your message and approach depending on the type of investor you are approaching.

7. Prepare for due diligence

The due-diligence process is a key stage in any investment. During due diligence, the investor will review the financial and legal aspects of your company to identify potential problems and risks.

Typically, the company documents, intellectual property, data protection, contracts with suppliers, customers, employment contracts and the like will be reviewed.

The results of due diligence can influence the negotiations and terms of the investment or sometimes lead to losing the investment.

Work with a specialist lawyer to get all these documents in order and solve in advance any issues that could hamper the investment.

You can read more about the due diligence process here .

8. Make sure you own the intellectual property rights

Intellectual property is one of the most important assets in today’s market and often the most rigorously scrutinised aspect of due diligence. Often, investments are held up or even not completed due to issues with the company’s intellectual property.

It is critical to make sure that in preparing for funding, the company owns all intellectual property rights. At the same time, you must be prepared to be able to prove how you obtained this intellectual property.

Thus, you should make sure that all the people who worked on the company’s solution/product (both employees, partners, contractors, and the founding team) have assigned the intellectual property to the company (either through separate assignment agreements or clauses included in the contracts signed with them).

9. Find an investment lawyer

An investment/M&A lawyer is an essential partner to the startup throughout the process of an investment (and beyond).

In addition to assisting you in negotiating the investment documents, an experienced lawyer can help you prepare as well as possible for the fundraising (by putting together revised due diligence documents, obtaining intellectual property, etc.).

We recommend that you choose a lawyer with whom you have a good connection, whom you trust and with whom you enjoy working.