EquityBrix works with numerous early-stage businesses, as well as partnering with business accelerators and incubators.
So needless to say, we have many businesses reaching out to us telling us they’re ready to raise investment.
However, a significant percentage of the time, the businesses that come to us or our partners are not quite ready to raise investment fundraising for any of a variety of reasons.
This article will cover many of the challenges we see trip up and slow down early-stage companies in their fundraising efforts and provides an “Investor Readiness Checklist.”
Note that you may not be able to check off every item on the checklist, but the more the better, and some items are absolute requirements for investment fundraising.
Evaluate if/when Investment Fundraising is Necessary
Invariably, investment fundraising is hard work and very time consuming. Rarely do serious investors just fund a “good business idea” or even, a solid good business plan.
Therefore, the more you can bootstrap your business and get it “investor ready” the more likely you are to successfully raise investment capital.
Of course, not every startup needs external funding at an early stage. For example, many service businesses, such as an online marketing agency, consulting business, a dog grooming business, as well as a simple one or two product Ecommerce businesses, can often be bootstrapped – at least in the early days.
In fact, this is an absolute expectation of most investors. Did you, and your team put your/their own time and money into the business? How much time and/or money, etc.
You need to be strategic about the timing, purpose, and amount of capital you seek to ensure you’re raising funds for the right reasons and maximizing the effectiveness of your fundraising efforts.
Savvy founders and management teams approach fundraising as a tool to accelerate growth, not as a lifeline. The list below can help founders evaluate if their company is prepared to begin raising funds, or if there is still more work, research, planning and execution to be done first.
☐ List what you need to do to form and start growing your business, and the associated costs. For example, finding a good brand name, identifying/purchasing an available domain name, business formation and registration, etc.
☐ List alternatives to external fundraising (e.g., bootstrapping, consulting, friends and family, SBA loans, grants, etc.).
☐ Identify how and when funding will accelerate your growth or help you achieve critical milestones.
☐ Decide: Do you need to, or even can you realistically raise capital now, or do you need to wait to show prospective investors, a MVP product, more market traction, etc.?
Investors hate to lose money and want to reduce their risk. So, it’s important that you understand how far your business is along in demonstrating that it’s a “good bet”, worthy of being invested in. Also be prepared to speak on how and when it will provide an attractive return to prospective investors. Remember that investors have many investment opportunities, what makes yours compelling at this stage?
Legal Readiness
Form your Business – Properly
In preparation for investment fundraising, it is essential to form your business properly. If you plan to raise investment capital it is best to set up a Delaware C corporation – since most investors feel comfortable with Delaware business law.
Most investors will want to look at your Cap Table and minimally understand how much ownership the Founding Team has, and overall how many shares have been authorized, earmarked, and issued.
When forming your company, you want to authorize sufficient shares for your founders, management team members and early-stage investors. For a variety of reasons, when forming your company, you should plan to authorize 10,000,000 – 20,000,000 shares at $0.0001 share.
Of course, you can authorize a lower or greater number of shares depending on the needs of your business.
Pro Tip: The state of Delaware charges a very high franchise tax fee if you authorize a large number of shares, so when file your Delaware Franchise Tax, you’ll typically want to use the “Alternative Tax Method” which will make the Delaware franchise tax fee fairly reasonable.
In addition to authorizing stock for your business, you’ll want to have a basic Operating Agreement and an EIN number for establishing a bank account for your business. You can either have an attorney set up your corporation for you or use one of a number of lower cost incorporation services such as BizFilings.
Once you authorize shares, you’ll want to issue stock to the founders and any founding team members. Keeping track of your company’s authorized, issued and earmarked stock options is critical. This is referred to as your Capitalization Table, aka Cap Table. You can keep track of this using a spreadsheet to start, or a 3rd party service. Once you start raising and officially bring in investment capital there are legal filings to be completed.
☐ Ensure proper incorporation (typically Delaware C-Corp). *
☐ Have basic Business Formation paperwork including your Business Operating Agreement and EIN number. *
☐ Confirm all founders’ shares and equity agreements are clearly documented.
☐ Verify cap table accuracy (tools: Excel, Carta, EquityBrix). *
Your Investment Agreement
One area that often trips up or slows down founders and early-stage businesses up is having the right investor agreement prepared and ready to be signed by investors. Having the right investor agreement is critical investment fundraising. Is it best to have a SAFE Note, a Convertible Note, or should your offering agreement be designed as a “fixed price round.”
When it comes to your investment agreement there are a number of variables that should be considered including:
- The stage of your business,
- How much capital does your need to raise overall to reach profitability, and what’s your overall investment capital fundraising strategy,
- Do you have a pre-money business valuation,
- What type of investors are your reaching out to, and what types of investment deal terms appeal to them,
- How do you plan to market and raise capital for your business (certain investment offerings enable your business to broadly market your business to prospective investors, others significantly restrict your marketing outreach to prospective investors).
- Are you allowed to receive investment capital and utilize it “as it comes in” or do you need to wait until a minimum threshold amount is reached before you can access and utilize the capital for your business.
These days, most early-stage businesses that don’t yet have a formal pre-money valuation often use a SAFE Note – since they don’t require having a formal pre-money or post money valuation, but they typically do have a valuation cap.
Since the area of business investment agreements and pre- or post-money valuation has numerous variables and considerations, we will dig into this topic in greater detail in a separate Business Smarts article devoted to Investment Agreements and how to determine a pre-money valuation for your business.
Your Business Narrative / Overview
Craft Your Story (Pitch Deck Creation)
Since most investors won’t dig into the details of an investment opportunity unless they feel compelled or intrigued by the business opportunity, your pitch/overview deck needs to be compelling and resonate– which tends to be more challenging and time-consuming than it sounds.)
Investors fund narratives they can believe in. A compelling, coherent story that connects your team’s unique abilities to a sizable and attainable market opportunity helps open checkbooks. The best pitch isn’t just factually accurate, it creates emotional resonance and makes your success feel highly probable, if not inevitable.
Below are elements of a strong business pitch/overview deck.
A Clear Problem / Market Need
☐ Businesses need to solve problems / serve a clear unmet market need.
☐ Clearly identify and articulate the need / challenge being faced by your target audience. *
A Unique and Compelling Solution
☐ Clearly articulate how and why your solution solves the problem and serves the need of your target market better than others available options. *
A Promising and Sufficiently Sized Market Opportunity
☐ Clearly define your target market size (TAM/SAM/SOM) in concrete numbers. *
☐ Identify and articulate why your market is sizable, growing and/or ready for
disruption. *
Driven, Formidable Founders / Management Team
☐ Create short, compelling founder bios highlighting relevant expertise. *
☐ Prepare answers to “Why you/your team?” – emphasize skills, industry experience, resilience, resourcefulness, expertise… *
☐ List specific evidence of previous accomplishments or expertise of the team.
Your Business Model
☐ Outline how your business will make money and from whom. *
☐ How much your target customers are willing to pay. (And ideally evidence of paying customers or primary or secondary market research supporting your pricing plan.)
Realistic 3 – 5 Year Financial Projections
☐ When you raise capital for your business you need to provide realistic 3-5 year financial projections. *
☐ Prepare key supporting economic info such as cost of customer acquisition, value of a customer purchase, likelihood of repeat purchases or upgrades, expected life-time customer value. Having this type of info is extremely helpful in gaining investor confidence and providing a level of comfort/confidence to prospective investors.
What makes your company unique or better than the competition
☐ As part of your investor deck, include 3 – 5 bullet points outlining what makes your company unique or better than the competition. Be prepared to back it up and substantiate each point.
Your financial “ask”
To set yourself up for success, you should have 3 versions of your Pitch/Overview deck (as explained in the section below).
In the short, teaser version, we do not recommend you include your financial ask, and if you do, don’t include your business valuation. Investors vary greatly in the expertise, perceptions and even by geographic region. The chances of you hitting the mark with investors related to your early-stage business valuation is spotty. You should include your financial ask / investment opportunity slide only when you’re pitching in front of prospective investors and can respond to questions and handle concerns or objections in real-time.
Your Business Narrative (Pitch Deck Creation – con’t)
Create at least 2, ideally 3 versions of your Pitch/Overview deck.
☐ A shortened, ‘teaser’ version (which you’ll send out to prospective investors to solicit enough interest for them to want to have an online or in-person meeting) *
☐ A standard length version for your initial investor meeting. *
☐ A detailed, extended length version providing a more detailed overview of your business for when investors want a deeper dive into your business.
In addition to your Pitch/Overview deck, you’ll want to…
☐ Draft a simple, concise statement of the market opportunity (Elevator Pitch). *
☐ Write a concise 2-minute pitch clearly outlining and summarizing the problem, solution, the market opportunity, traction. *
☐ Validate your pitch narrative with trusted advisors or successful founders. *
☐ Practice your pitch delivery regularly until it feels natural and convincing.
☐ Create a 1-page executive summary *
☐ Create a sample press release. What’s newsworthy related to your business or product? Why should your target audience care?
Product Development and Product Availability
Investors bet on market adoption and traction, not just ideas. Having a functioning MVP product with real users and user feedback transforms your pitch from theoretical to providing tangible evidence of market fit, price acceptance, and more.
The further along your product is the better.. The key is to get a basic functional product to market as quickly as possible, get customer feedback and iterate. Ideally you should have…
☐ Graphical high-level documentation or slide of your company’s Product Roadmap/Product Plan *
☐ Availability of MVP Product Offering
☐ Actual early-stage user feedback on your product and ideally user testimonials
☐ Pricing analysis based on actual users’ feedback to support your pricing plan and financial model
Market and Business Traction
It’s important to develop quarterly, monthly and ideally weekly business objectives (KO’s = Key Objectives) as well as target metrics/business KPIs.
Growth metrics aren’t arbitrary, they demonstrate to investors you’ve found product-market fit and can execute consistently. This can significantly reduce prospective investors’ perceived risk.
☐ Launch your MVP and get early-stage real user feedback.
☐ Establish clear target usage and market adoption metrics *
☐ Track and demonstrate measurable weekly and monthly growth and progress against your WIN List (What’s Important Now)
☐ If possible, document customer testimonials.
☐ Verify signs of product-market fit (cost of customer acquisition, retention, organic growth, etc.).
☐ Quantify and clearly present your weekly and monthly user and/or revenue growth.
☐ Document key metrics (CAC, LTV, retention, engagement) in an easy-to-share
format.
☐ Prepare a “traction dashboard” showing progress against key metrics (use charts or visuals).
Financial Readiness and Startup Hygiene
Financial disorganization is a red flag for investors. Clean books and proper legal structure signal professionalism and reduce friction during due diligence and help you close faster. Investor-ready financials inspire confidence and accelerate the funding process.
Financial Model
☐ Build a realistic 36–48-month financial projection model (document key assumptions). *
☐ Clearly state planned use of funds and expected outcomes from funding. *
☐ Prepare and include a simplified high-level financial summary for your pitch deck. *
Provide Basic Financials
☐ Produce clean, investor-ready Profit & Loss statement and Cash Flow. *
☐ Track and categorize expenses accurately; reconcile all expense info. *
Tip: When you open your business bank account, get a business debit card and credit card. It’s far easier to have 1 or 2 founders utilizing business related bank cards to track and reconcile your business expenses than using cash or checks.
Data Room Setup and Investor Access
☐ Create a secure digital data room (Dropbox, Docsend, Google Drive, EquityBrix).
☐ Upload incorporation documents, partnership agreements, signed team member equity/compensation agreements, and your up-to-date cap table.
☐ Include financial statements and projections, key contracts, SAFE Note templates, signed investor agreements, and signed employee agreements.
☐ Maintain clear, organized folders for quick investor access.
Fundraising Goals & Strategy
Investment fundraising is about being strategic and at the same time its often a numbers game. Being strategic and diligent about your target raise amount and the type of investors that fit, shortens pitching cycles and helps you bring on investors or strategic partners/investors who may add more than just capital. The right investors can often become your advocates, advisors, and door-openers.
Raise Amount & Terms
☐ Calculate 12-18 months runway needed or whatever is needed to breakeven, plus a bit more for cushion to set your investment raise amount.
☐ Decide on a convertible instrument (SAFE or Convertible Note) or a priced equity round. Note if you have decided to utilize a SAFE Note, we suggest potentially using the standard Y Combinator SAFE Note agreement – since it has been used extensively and is well understood and accepted by the investment community.
☐ Set initial realistic minimum target that will enable you to reach your goals.
Pulling it all together
Raising investment capital is hard work and time consuming. However, if you put in the time upfront, have the proper materials, can demonstrate market traction, and present your materials to prospective investors clearly and succinctly, your odds of raising investment capital relatively quickly, substantially increases.
EquityBrix provides all the tools you need to put your offering in front of prospective investors and successfully raise capital.
☐ Sign-up for and utilize the EquityBrix Platform for Investment Capital Fundraising *
Note: Now that your business is prepared to be “investor ready”, we will dig into the topics associated with Investment Acquisition including: Best Practices, Methods & Tools for Investor Targeting; Investor Outreach and Nurturing; Fundraising Execution; Investor Meetings and Follow-up; Building Investment Momentum; Closing Investment Deals; Tracking Investment and Investors; Ongoing Prospective Investor and Investor Communications, and more.
Need a professional review of your investor readiness?
EquityBrix offers complimentary 20-minute consultation with an experienced investment fundraiser to help identify any potential red flags related to investor readiness.
Additionally, we also work with numerous business accelerators and business incubators if you need additional hands-on support to become investor ready.
