The equity fundraising process can be extremely time-consuming in part because there are so many different sources of equity financing. Including but not limited to high net worth individuals, traditional venture capital firms, and large international banking institutions, potential investors number well into the thousands. While you want to be aggressive and expansive in your search for a financial backer, you can save valuable resources and time by focusing your efforts only on those investors who are most likely to fund your company. In illustration, many large venture capital firms have preferred minimum investment levels. If you're seeking to raise only $500,000 for your business, then your time would be better spent on smaller investment firms and angels. In addition, when you are contacting and meeting with potential investors, your company will be more warmly received if you come across as well-informed about their background and investment interests, and the targeting process can help educate you in this regard.
Submitting An Executive Summary and Business Plan
After you have a list of potential investors, you should submit business plan (including an executive summary) to each of them. (Read more about creating your executive summary and business plan in Springboard's Business Plan Guide.) Try to submit the plan to an investor either directly if you have been personally introduced to him/her or through a contact that has agreed to make an introduction on your behalf. Within a couple of days of the submission, you should be sure to follow up with a telephone call and email to ensure that the investor received the document, to answer any questions s/he might have, and to schedule a time to meet to give them a formal presentation.
Please note that while every case is different, many investors are extremely resistant to signing confidentiality agreements prior to reviewing business plans.
The Investor Presentation
After submitting a business plan to an investor, you should schedule time to give them a formal presentation. This initial meeting typically takes place in the investor's offices, usually last one to two hours, and can include a varying number of individuals. It is important for you to prepare appropriately for this presentation, which can be a pivotal step in your future with a given investor. You can find information about the elements of a venture presentation in Creating Your Pitch and essential guidelines for giving a private investor presentation in The Investor Presentation.
The Term Sheet
After hearing your investment presentation and conducting extensive preliminary research on your company and industry, an investor may indicate that s/he is highly interested in your company. S/he may intend to sign a term sheet, which is a summary of the terms upon which the financier is willing to invest in the company. A term sheet is a non-binding and outlines the expected nature of the ownership-bearing security that the investor expects to purchase from the company. Read more about this complicated document in The Term Sheet.
Due Diligence
Following the execution of a term sheet, an investor typically has anywhere from four to eight weeks to conduct due diligence, which is a process potential investors undertake to analyze and assess the desirability, value, and potential of an investment opportunity. Read more about this process in Due Diligence.
Negotiations and Closing
Following the execution of a term sheet, an investor typically has anywhere from four to eight weeks to conduct due diligence, which is a process potential investors undertake to analyze and assess the desirability, value, and potential of an investment opportunity. Read more about this process in Due Diligence.
