As the saying goes, you need to spend money to make money. And if you’re a high-growth startup looking to get off the ground or expand, it’s likely you’ll need an injection of capital to do that. Byron van Vugt from NZ Growth Capital Partners explains.
For investors, capital raises provide an opportunity to invest in a company’s ambitions. However, as with all investments, there’s a risk to reward trade-off. That’s why it’s important for founders to understand that the clearer you can articulate the opportunity and its potential risks – and proposed mitigations – the better equipped investors will be to assess your business as a viable investment.
“Capital raising can be challenging and time-consuming, but it forces you to evaluate the real metrics and areas of your business that are often overlooked.” – Bex Rempel, ZeroJet.
You know you need financial support, but how do you go about getting it? Let’s take a quick look at the capital raise process.
It starts with a casual introduction
In the early days, investors invest in you more than your business, so relationship-building should take precedence. Be sure to share your story and vision with people ahead of pitching to investors.
“Speak to other founders that have raised money before raising it yourself, learn the lessons and get them to help prepare your pitch deck and investment documents.” – Chris Bacon, Komodo Wellbeing.
Prepare a high-level summary that focuses on your business journey, future milestones – and your ultimate vision. This will help you find potential investors who buy into your vision and are best aligned to assist you moving forward.
Time to get pitching
Often, the first thing potential investors will be looking for is a pitch deck. These are presentation slides which briefly summarise you and your business. You want to create enough interest for a follow-up meeting, so its important to provide just enough detail for them to make an assessment.
Depending on the type of investor, you might receive an invitation to present your pitch deck. Again, use this as an opportunity to pique their interest – and ultimately, land follow-up meetings or enter due diligence.
Due diligence, information memorandums & data rooms
At this stage, a thorough Information Memorandum (IM) and complete Data Room will be needed for potential investors to get a deeper understanding of your business.
The IM and Data Room give an indication of your ability to organise and simplify large amounts of interrelated info. You’ll need to find a balance between providing the necessary level of detail and keeping things simple.
Outline any known risks, concerns and abnormalities. Investors don’t like surprises so complete transparency is critical here.
“By far the most influential factor in getting investors investing is commercial traction or numbers-based growth.” – Shaveer Mirpuri, Insite.AI.
Be prepared to answer questions or requests for further explanation. If something can’t be facilitated quickly, explain the cause, and outline an expected timeframe.
Lead investors and term sheets
Now that you’ve got investors undergoing due diligence, you must secure a lead investor. Typically, lead investors take up a significant portion of an investment round, and act as a signal to other investors that the round is getting traction.
Those investors interested in becoming lead will issue what’s called a term sheet – this details the terms they’re willing to invest on.
Don’t be afraid to negotiate with investors on their terms, but make sure you understand the thought that’s gone into each item – you don’t want the negotiations to back-fire.
Once signed, you’re well on your way to securing the necessary funding to take your business to the next level. Unless an interesting proposition comes along, try and stick to the terms on the term sheet. This keeps things smooth, keeps your lead investor happy, and should see the round filled quicker.
With the round hopefully nearing completion, pulling together the legal documents to allow commitments to start being banked takes priority. These can take some time – the New Zealand Angel Association has templates on their website which can help you get the ball rolling.
Once the documents are completed, it’s time for signatures – and to start banking funds!
Money in the bank – get back to growing.
Keep investors up to date regularly with your progress – the good and the bad – and make sure you ask them for help if you need it.
Come next round, your existing investors will be excited to take up their pro-rata rights, and you can focus your efforts on finding new investors to address your latest challenges.
Bold ideas. Big dreams. We’ll invest in that.
This directive is what underpins NZGCP’s Aspire NZ Seed Fund (Aspire) when it comes to investing in Kiwi tech companies.
The Aspire fund invests directly into early-stage NZ tech startups at Seed and Angel investment stages, alongside other like-minded investors. Although a generalist fund, their focus sectors are software, deep-tech, health-tech and agri-tech.
Are you ready to raise capital? If you’re keen to understand if investment from Aspire is right for you, the NZGCP team would love to hear from you here.