Ready, set, go! What you need to know about raising capital. Part 1: Let’s start preparing
What’s Inside?
- Getting your (financial) house in order
- Demonstrating traction through metrics
- Compliance and governance
- Building investor relationships
- What’s next?
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We know it’s been a tough 18 months for capital raising. Many of us have been hunkering down and focusing on cost cutting, doing bridge rounds, and conserving cash. But, there is hope! Early signs are showing more activity in the Australian cap raising market (which we’ve seen first hand with our own clients, 4 of whom collectively raised more than $10m in the last quarter!). So while it’s still early days, it may be time to start thinking about growth again.
We’re going to be sharing more info on the capital raising process with a new series of articles: Ready, Set, Go! What you need to know about raising capital. We’ll be delving into the details of what’s really involved in preparing for, executing and post capital raising from a true founder and CFO perspective.
Standard Ledger acts as fractional CFO for numerous startups, and we have helped clients raise more than $40m in the last 5 years, so as always, if we can help let us know!
1. Getting your (financial) house in order
Before you even think about raising capital, you’ll need to be organised. Keeping clean financial records and having established reporting practices shows investors you are managing your finances efficiently and responsibly. It’s essential to make sure you are monitoring key financial indicators like profit and loss, accounts receivable, and cash flow on a regular basis, as all of this shows potential investors that their money will be with a safe pair of hands. Don’t be concerned if you are pre-revenue, you can still show investors that you are proactive in monitoring finances, by having a solid foundation in financial management. Use spreadsheets if you’re early, and if you’re not already do yourself a favour and check it out CakeEquity. Let’s get stuck in!
2. Demonstrating traction through metrics
We love metrics, and you should too! A key aspect of preparing for a capital raise is demonstrating traction and growth. Whether you are a pre-revenue startup, or an early stage company, showcasing metrics that indicate progress is essential.
For pre-revenue startups, this could mean highlighting beta customers or early adopters who are testing your product, and for more established startups metrics such as monthly recurring revenue (MRR), annual recurring revenue (ARR), retention rates, churn rates, and customer acquisition costs (CAC) are important indicators of your performance. If this is sounding like a foreign language to you – read here so you’re in the know.
Showing consistent growth in these metrics will give potential investors confidence in you, and make your startup more attractive for investment. We’ve written more info on startup metrics, so read here to get up to speed.
3. Compliance and governance
Not the most exciting part of running a startup,but staying on top of compliance and governance is crucial for raising capital. Making sure that your company is compliant with regulatory requirements – including tax obligations, superannuation payments, and ASIC filings – will show investors that you are operating within the legal framework.
Governance practices like maintaining accurate board minutes and keeping detailed records of company decisions also shows that your startup takes transparency and accountability seriously, and also sets you up a solid foundation for future growth and scalability. Just remember that future investors will see these so just be mindful of the level of detail you include…
All of this and more will be what you need to get out of the gate, and will all end up in any data room you share with the investor. If there’s static data you can start loading it in early (think company certificates, shareholder docs etc), otherwise investors will always want the latest data, and during the cap raise, they’ll want you to keep updating the latest monthly information (which you’ll be in the habit of already now you know what you need to do!).
4. Building investor relationships
Often overlooked but vitally important is building relationships with potential investors. Start early by creating a CRM of potential investors, and reach out to them to gauge interest. Find ways of connecting to them, and remember you’re not asking for money yet, but see if they’re open to receiving any preliminary information ahead of opening the round. Think of these as pre-investor updates, so when connecting for the first time you’ll want to have a brief ‘teaser’ describing the company, with some key stats. If you’re lucky some investors may want to engage earlier than perhaps you’re ready, so if that happens you’ll just have to hustle, like any good founder, right?
Engaging with investors before formally seeking funding can help you understand their preferences and expectations, helping you to tailor your pitch accordingly. By nurturing these relationships early on, you can create a network of investors who are genuinely interested in your startup’s success, so get out there!
What’s next?
Remember that preparing for a capital raise involves more than just pitching your business idea. It requires meticulous attention to financial management, metrics tracking, compliance, governance, and investor relationships. By getting everything in order before seeking funding, you can massively increase your chances of securing investment and setting your startup up for long-term success.
Our team at Standard Ledger is passionate about startups, and helping you navigate the complexities of raising capital and growing your business. Contact us today to learn more about how we can support your startup’s financial journey.
Read here for the next part of our series: Ready, Set, Go! What you need to know about raising capital. Part 2: Get ready to raise.
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