Funding is a crucial question when creating a company, especially when it comes to a startup. In this regard, many companies resort to fundraising to finance their project (seed capital) or accelerate their growth (development capital).
A fundraiser is an operation for the company to increase its share capital thanks to the funds provided by existing or external investors. In return for their investment, they receive shares or company shares that allow them to participate in social life and governance decisions.
The objective of this operation is to convince investors to inject funds into your company and bring them into the capital in order to stimulate the development of the company and finance its growth.
Raising capital thus has many advantages. It indeed allows the founder to benefit from equity financing without resorting to a bank loan. On the other hand, calling on external investors allows him to develop his skills network and bring to his company a particular know-how or expertise.
If fundraising is a financing method favored by young innovative companies, it is not an obvious approach. Whether it's your first fundraiser or not, its success depends on respecting a certain number of steps.
No possible funding without good preparation! The first step in raising funds is thus to formalize your strategy. Indeed, you must be able to present a solid and credible entrepreneurial project to potential investors. This implies defining your direction and developing a convincing speech.
To do this, you need the following documentation:
1️⃣ The Pitch deck
The Pitch deck is a short and visual presentation of your entrepreneurial project (between 10 and 20 slides). The goal is to interest investors by giving them the main keys to the project using images, graphs, key figures and short, impactful texts.
The Pitch usually highlights a market problem and the solution provided by your company to respond to it (presentation of the product or service). It more concisely includes the market study carried out, your business model, financial projections, the commercial means envisaged and the amount of funds necessary to achieve your objectives.
💡To guide you in the preparation of your pitch deck, here is an article listing the essential information.
2️⃣ The business plan
The business plan is the essential presentation tool during prospecting and negotiations with private investors. It must reflect the viability and reliability of the project envisaged. It is intended to be concise, clear but exhaustive. Its form and content must be rigorously taken care of in order to seduce investors. It must thus contain:
3️⃣ The Cap Table
The cap table, or capitalization table, is a summary table of the distribution of capital within your company. This table is constantly evolving, especially during a fundraising round or the allocation of BSPCE (share warrants for company founders).
In the context of fundraising, the cap table is generally requested by prospective investors. It indeed allows them to get an idea of the current distribution of capital and the impact of their investment on it, if applicable.
Updating your capitalization table also allows you to question the balances within it and thus anticipate any potential needs for rebalancing before presenting your project to investors.
In parallel with drafting these documents, you must look for investors who can accompany you in your startup phase or development project. To do this, you need to determine the profile of your ideal investor.
This step should not be overlooked as these capital investors will then actively participate in the life of your company. Therefore, be careful to select financial partners who share the values of your company.
It is thus relevant to opt for a panel of investors who operate in your sector of activity and thus have a good understanding of the market in which you position yourself. In addition, two criteria should help you select your future shareholders or associates:
When you have identified interested investors, it is appropriate to start negotiating the terms of the fundraising through the signing of the letter of intent or term sheet.
The letter of intent, or term sheet, formalizes discussions with the investor and provides a framework for the financial and legal conditions of the negotiation. This document includes the intentions of the parties to the fundraising.
Unless otherwise stipulated, the term sheet does not constitute a legal commitment, it is not mandatory. It simply aims to structure the negotiations.
The signing of the letter of intent by the investor triggers a new phase in the fundraising: that of due diligence, the success of which determines the continuation of the fundraising process.
💡To help you structure this document, we recommend this article which details the essential clauses to include in your term sheet.
After the matching phase comes the due diligence stage. This is the stage during which potential investors carry out a thorough study of your file: market potential, time-to-market, technical and legal feasibility, credibility of financial forecasts, team cohesion... In other words, they scrutinize the relevance and viability of your project.
Communication and responsiveness are at the heart of this phase. You need to be ready to provide additional information to investors if needed and to communicate any new relevant data (new customer, new figures...).
Once the due diligence stage has passed, it is appropriate to negotiate the detailed terms of the fundraising with interested investors. The conditions of the operation are discussed and formalized through a partnership or shareholder agreement.
This document is a contract intended to frame the relationships between the company's partners. Indeed, it defines the role and extent of the rights of each shareholder, balances your interests and those of the investors, and anticipates any potential deadlock situations.
The drafting of a partnership agreement is a strategic step as it organizes the operating rules of the company.
The closing is the ultimate stage of the capital raising operation. Indeed, once the shareholder's pact is signed, it is necessary to proceed with the increase of the company's share capital. This last step involves accomplishing a certain number of formalities.
1️⃣ Call for an extraordinary general meeting (EGM) to vote and enact the capital increase and the entry of new shareholders into the company;
2️⃣ Investors signing the share subscription forms;
3️⃣ Issuance of a deposit certificate of funds by the bank upon presentation of the subscription forms and receipt of funds corresponding to the investor's contribution;
4️⃣ Completion of legal formalities: registration of the statutes at the commercial court registry, publication in a legal announcements newspaper…
With Equify, you can easily execute your fundraising: organization and sharing of your corporate documentation in the context of due diligence, signing of your documentation (shareholder pact, subscription forms, etc), convocation of your general meeting and updating of your social registers.