Quite often founders ask me, “I need to raise money for my startup. Can you connect me to any of the investors in your network”?
I always ask one question: “are you investment ready?”
Quite often that question catches them off-guard or back-pedaling. “Yeah, I have a product/software I think will be great if I get investors.”
Next set of questions:
Do you have a pitch/investor deck?
Do you have a financial model document?
What stage of funding are you looking at?
Tell me more about your team? Are you alone? Do you have co-founder(s)?
At what valuation are you looking to raise this money?
Do you have traction? MVP? Any proof of conceptualizing your idea?
Are you legally registered? Where?
How much of your company are you willing to give away during the `dilution phase?
What is your valuation? What are your valuations based on?
You can see confusion setting in. “All these questions just to raise money”?
There are more actually. This is just a snapshot.
Forget Shark Tanks. Forget all those Silicon Valley series, movies or books you read. Down here in Africa it’s war raising money from external investors. Well, internal investors either do not exist or are focused in some specific sectors you’re not in. Real estate and construction probably.
Raising money in Africa is difficult. Firstly, investors don’t trust the terrain. Yes, it does present a lot of opportunities but no one is a fool to put money into any highly volatile environment. Corruption. One day a government wakes up and decides not to leave power. Archaic regulations etc. Someone will give you money based on trust and assurance, it has little to do with what you’re building. They can find the same idea in a more advanced market.
That in mind, you need to go into fundraising mode with an open mind and covering all bases; even if its $10,000 you’re looking for. A typical fundraising cycle lasts for a minimum of 6 months to a maximum of 48 months depending on the complexity of the project and stage of financing.
There’s due diligence. That commences when an investor has expressed interest to invest. They dig deep into your data room where you have all your documents from finance to legal to everything. They come with a prepared set of questions and will cross every t and dot every i.
There is no free or easy money anywhere. Then there are onsite visits, talking to your team, partners, clients etc. To understand your business more and see if there’s consistency when you were blowing your horn in an article or a publication.
Then they go back to do a preliminary report on your company to the Investment Committee. They must all buy in or the investment deal is off. If there’s a buy-in, then comes the deeper and more extensive due diligence phase. If you’re lucky to survive this phase; then you go into a more frustrating and nerve-racking phase: Term sheets and discussion valuations.
It’s not a pretty stage. It’s an art of negotiation and you this will make or unmake you if you don’t have expert legal advisors on standby.
If you cross this phase, you have about 3 more stages to go through until the money hits your account.
Remember a deal is incomplete until funds are in your bank account. An investor can back out in the 11th hour making you go back to square one.
You have an exciting product, done a good investor pitch and gained some attention from some potential investors. Good news!
Then comes the next question: “can you share your dataroom with me/us?” Sure we can do that after signing a Non Disclosure Agreement (NDA).
The dataroom is where all the “meat”/action is. Depending on the stage of your business you can break it down it 4 key categories:
3. Business & Marketing
4. Product and Technical
Under these 4 broad categories are subfolders containing tens and hundreds of documents.
Under legal you will have:
1. Organization & Good standing
2. Employees, Employee benefits & Directors
3. Insurance coverage
4. Board, Directors & Resolution
Under Financials you will have:
1. Financial Modeling & Accounts
2. Bank Accounts
3. Investors including shareholders agreement/shares subscription agreements from previous shareholders (if any)
Under Business & Marketing you will have:
2. Key Customer information.
3. General marketing info
Under Product & Technical you will have:
1. Technical Product Specifications
2. Technical Roadmap
3. Technology stack (if you’re building a tech startup)
Etc etc etc
Dataroom cannot be completed by one person alone and requires extensive collaboration among all team members, advisors, etc to set up.
Requires commitment and dedication to set up but once done, your life becomes quite easy in the fundraising process.
There’s nothing like easy/free money even if it’s a grant…
The writer is the co-founder and CEO of AgroCenta.