The Deck and the Deal

In so many years of assisting startups and growth companies raise funds we have come across so many entrepreneurs who feel that the investor community is roaming around with a cheque book waiting to fund any good idea which comes by. This belief is mainly due to the immense media attention given to the companies which get funded as well as partial knowledge around the entire fund-raising process. Firstly the investors do not fund ideas they fund businesses a fact which is normally misunderstood. The entire fund-raising process is a constant back and forth between the two parties and only comes into fruition once the due diligence process begins. It is time taking and cumbersome. The process begins with a pitch deck which needs to have a valuation. Once the business model and valuation is accepted by the investors then the process moves to a term sheet which basically will outline the terms and conditions of the investment. The term sheet can be binding or non binding. After the term sheet is finalized then the investor will do a due diligence both legal and financial. This is proceeded by creating a share holder agreement which will outline all the duties, rights and obligations of both parties. Once the SHA is signed and agreed then a call for money is initiated which means that the investor will now transfer the money to the companies account. The money may come at one shot or in milestone-based phases. It is therefore critical for the entrepreneur to know the length of their runway (at what time will the money run out) so that the process is initiated well in advance in order to get the funds when needed. This will ensure that there is no rush for funding in the last hour leading to either signing bad terms or worse closure of operations.