Tag Archives: Startup Pitch Deck

Introduction to Fund Raising Process

Our firm Magistral Consulting has helped in raising funds for more than a hundred companies, start-ups, Private Equity, Venture Capital, and Real Estate funds in the past. We have done it for firms based out of the US, UK, Europe, and Australia. In the process of doing so, we have acquired immense knowledge about the process of fund-raising.

This article will focus on the process that we follow for Start-ups and established companies looking to raise funds primarily through selling equity. Options of debt financing are also explored during the fund-raising negotiations with investors. Although each firm’s situation is unique, here are the common steps that all firms follow in their journey of fund-raising. We undertake this process end-to-end for the firms looking to raise money

Steps to Raise Funds for Startups and Other Firms

Fund Raising for Start-ups and Companies

Fund Raising Process for Start-ups and Other Firms

Step 1: Deal Documentation for Fund Raising

Before the fund-raising process could kick-off, all deal documents need to be prepared. There are three documents that we find an absolute must for a smooth process. Confidential Investment Memo could be made closer to the fundraising process. These documents are:

Teaser Document: It is also known as 1 pager. It’s a brief introduction about the opportunity and usually the first document that is sent across to the investors. For a firm, it will carry an introduction to its products or services, past financial performance, future projections of revenue and profitability, returns that an investor could make in a 3 to 5-year period, and some information on the founding team. It’s ideal to have this information presented in a concise manner with almost overuse of infographics to convey the message. In no case, this document goes over 1 page in length

Pitch Deck: This document is sent after the teaser document if the investor shows interest in the opportunity. This is typically a 5 to 10 pager document carrying all the details about the firm. The details are on similar lines as in the teaser document but more detailed. Major sections include, about the firm, about business, competition, business model, financials, valuations, plans, strategy, team, usage of funds, patents, etc. not necessarily in that order.

Financial Model: Models also vary in terms of details that they capture. A start-up with just an idea can have a very basic valuation model, whereas a firm with multiple lines of established businesses may have a detailed model running into multiple sheets. The purpose of the model is to value the company and show returns to investors which are adjusted for the risk. This is the document usually required in fundraising negotiations.

Investment Memorandum: This is prepared closer to the fund-raising process. While pitch deck maybe a Marketing document, Investment Memo can be seen more as a factual document that highlights the risks clearly in the investment. This may have legal, compliance, and regulatory consequences.

The documents are customized a great deal depending on the nature of the deal like raising a seed round, Series A, Series B, Series C or further growth capital

Once all the documents are in ship-shape and all stakeholders buy into the content in these documents, it is decided to proceed with investors’ reach out.

Step 2: Target and List Generation

This step could take place in parallel with Step 1.  It is about finding the investors who may be interested in the investment opportunity that the firm presents.

Here are the ways to find out the investment firms that may be interested in the opportunity:

Funds required: For smaller fund sizes say lower than $ 5 million, a Venture Capital firm or smaller Private Equity firms will be more suitable. For larger amounts, Private Equity or Family Offices will be more appropriate

Competitive Intelligence: These are the firms that invested in a similar opportunity with the competition. For example, if you are an app that supplies drivers on-demand, which are the investors, that invested in similar apps in the recent past. The way to find that out is either through industry databases or through extensive research in news and events portals

Industry Specialization: These are the firms that specialize in the given space. If the firm is in SaaS space, it makes sense to look for investors who socializes in SaaS and has made investments in the industry

Geographical Specialization: These are the firms that specialize in investing in a specific country or region. There are global investors as well.

ESG and other considerations: Some investors specifically look for sustainable investments like Green technology etc. Other specializations are around companies founded by say women or other minorities and disadvantaged groups. Impact investing is another important category under which a company could fall.

Once the firms are identified, we proceed with the identification of individuals within those firms, who may be in a decision-making capacity to invest in your firm

The information required here is the name of the individual in each firm, their profile, email IDs, phone numbers, and office address.

Step 3: Reach-out and Meetings Set-up

A reach out is performed by mailing to all suitable investors. The email is suitably customized to the needs of each investor and conveys the salient features of the deal. Reach-out over the phone is done for investors, which is very relevant. After the initial communique, a reasonable number of follow-ups are done to make sure there are no stone unturned

On every 100 firms’ reach-out, it is expected to have 5 good quality meetings related to fund-raise. Meetings are coordinated between investors and the entrepreneur.

Step 4: Negotiations

Negotiations go in all sorts of complications on valuations. Here the Financial Model is tested out with all its assumptions. Finally, if everything is fine, a term sheet is issued by the investor. Term sheets need to be studied closely for all sorts of caveats, liabilities, and terms

Why it makes sense to Outsource the Fund-Raising Support?

Running and growing a company in itself is a challenging job. Making all arrangements to raise funds on top of that is cumbersome and takes the focus of the entrepreneur off growing his enterprise. The whole process of fund-raising could be really confusing for a first-timer. It may take a long time for someone to learn the process on his own. It might take anywhere between a couple of months to a year for a company to raise funds depending on its specific situation. This job requires specialization, network, and focus. An outsourcing firm like Magistral provides that and still gives the control back to you at the most crucial stage of fundraising like negotiations.

Our pricing

Our pricing is a mix of upfront retainer fees plus a success-fee that is a percentage of the overall fund raised due to our efforts. This is paid out to us as a consulting or a finder fee. Here Magistral is not a dealer broker and needs no license to operate in international markets. For certain situations where broker-dealer licenses or any other similar licenses are required in any geography, we have pacts with our representatives in the US, UK, and Australia.

 

There is a huge discussion on the upfront retainer fee for our services with prospective clients. The firms suggest all fees be variable and absolutely no upfront retainer. One discussion I remember where a person suggested that everyone asking for upfront fees for fund-raising is a scam. These are the same people who are paying upfront fees to their lawyers, accountants, and everyone else for their services. If they think it is not a good idea to spend even a few thousand dollars behind their venture to raise funds, why on earth will we spend our efforts behind his fund-raising efforts. It talks to us loud and clear. They are not confident about their venture and may not have resources to even survive for the period that goes into raising funds. As you see, in earlier steps, we spend a considerable effort towards fund-raising, we would not do it for anyone who is just playing around and does not mind giving a higher share of success fees at the expense of the future investors. At some level, this whole exercise needs to be seen as the effort and related pay. That is where an upfront retainer comes into play.

Negotiations are complicated. What if an investor quashes your valuations and proposes something that cuts your valuation to half? Will you take the deal? If not, how is it our fault in facilitating the deal? It’s not fair to expect from us to keep coming up with a pipeline of meetings that are suitable to all your requirements, just because our payments are tied up with the raising funds. That is another case for having some portion of payment tied to the effort and not all of it to the success. If you think your start-up has funds to hire a specialist who will look into fund-raising support full time, drop an inquiry here

Typical Results

Reaching out to 100 investors should yield a small round of financing for a business that has some sort of presence on the ground and has made some money in the past. Things get difficult for mere ideas a bit if they don’t come from someone who has not founded or run any company before. If reaching out to 1000 investors does not yield any meaningful conversations, it is possibly the end of the road for the firm looking to raise money. Growth capital in the form of Series B and beyond see a warmer response than a seed round. One should take into consideration a period of at least a couple of months on the lower side to a year on the higher side for closing the next round. If you are a venture-backed start-up it makes sense to keep working on populating the pipeline all the time for the next round.

Fund-Raising for Private Equity, Venture Capital and Real Estate Funds

Although the process of fund-raising for General Partners follows the same process, the people looking to raise funds here are more sophisticated. Also, larger amounts of fund-raise are involved here. The United States requires a broker-dealer license to arrange funds on a brokerage fee basis. We deal with funds looking to raise money by helping them reach-out to Limited Partners, purely on fixed cost and fixed effort basis. Our ideal client is one who is looking to hire an analyst for reaching out to Limited Partners and not the one who is looking to hire a Private Placement player. If that makes sense to you please drop an inquiry here

If you are in any stage of your fund-raising journey and are looking for some direction, we can get in touch for a free consulting session, drop an inquiry with all details at www.magistralconsulting.com/contact

About Magistral

Magistral is an outsourcing firm that has helped multiple start-ups and companies in raising funds. It has also helped multiple General Partners like Private Equity, Venture Capital, and Real Estate funds in raising money. For more details please visit www.magistralconsulting.com

About the Author

The author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any queries of business inquiries.

Over the years our team has worked on multiple pitch decks, some raising funds for a Private Equity fund, some looking for co-investors, some pitching a real estate investment while others for incubators trying to exit a portfolio company.

Recently the demand for pitch deck outsourcing has gone up due to more sophisticated demands from angel investors and VC firms for a robust business plan. Also, pitch deck design requirements have also gone up by several notches. A potential investor judges the business potential of a startup from the PowerPoint Presentation or the pitch presentation that details the business, its target audience, clients, its social media presence, marketing collateral, customer acquisition strategy, digital marketing strategy, and several other operational ideas about the upcoming startup. A pitch deck that explains the business idea well gets multiple investors. A pitch deck template with attractive graphic design that also explains the business model well will get the attention of angel investors. A successful pitch deck explains the value proposition, details out the financial model, talks about all the market segments, that the small business is trying to reach out. Investor pitch should be the entrepreneur‘s complete idea of the business for a successful fundraising round. It should have all the branding aspects in terms of colors, logos, etc. Financial projection should clearly spell out revenues, costs, valuation, and marketing plans with calculations around customer acquisition cost and strategy. It’s then only that the pitch deck will resonate with your target audience which is angel investors or VC funds.

Almost, always there are some consistent characteristics of the pitch deck that eventually pulls it off on the road-show. Here are these characteristics of the winning pitch deck:

1. Number of Slides: The number of slides for an investment pitch deck is ideally is 10-12. It can go as high as 20, but anything over that is overkill to raise money. A pitch that we designed only on 5 slides, for real-estate investment, was used to raise as much as 10 Million USD in co-investments

2. The flow of Presentation: Information has to flow like a stream of water. You introduce a subject, just to tease the reader and before an obvious question, your next slide is sitting there, answering it. Slides are as engaging as a story-book. Typical example: Start with a universal problem that everyone acknowledges, detail the current ways of solving the problem, go onto propose how all existing solutions are ineffective, present your solution that is different from everything else out there, give business case for your solution, your funding requirements, what can investors expect and finally closing it with the team profile and their accomplishments. Everything flows one after the other like an engaging storybook

3. Structure within a slide: All tables and structures used consistently follow the MECE principle. MECE stands for Mutually Exclusive and Collectively Exhaustive. A combination of any number of bullet points on a slide has to be MECE. All bullet points combined should exhaustively cover all aspects of a subject and at the same time, no two bullet points should convey anything similar

4. Brand logo and color consistency: Rainbow of colors look good on a book that carries nursery rhymes, but for something that is meant for an Investment Banking crowd, it needs to be soberer. Limited colors on slides which specifically need to be derived from the brand logo, shows the professionalism of the presenter. Loud colors can be used for investment themes related to B2C but for anything B2B, hues need to be tapered down

5. The structure across the slides: If something is repeating again and again on multiple slides, like fund returns of different funds on different slides, the corresponding data needs to be at the exact same place on every slide. It’s like while you quickly move from one slide to another, tables should not dance from its place. The eye of the recipient gets trained to see specific data at a specific place on every slide

6. Less the text, better: For everything that can replace a text is welcome. A picture says a thousand words and one should use info-graphic or a picture to convey rather than writing a thousand words on slides

7. Back-up Material: Although fewer slides are there on a pitch deck, every number that is used on the slide should have a detailed back-up ready to be opened in case of a query. A 5 slides Pitch Deck is usually preceded by 30-40 page business case or a project plan. Another excel carrying P&L, Balance Sheet and Cash Flow projections almost always follow. Financial Modeling is done for more complex investment plans

8. Team Bio: It’s the team that usually gets funding. Their credentials and experience are almost always highlighted in the pitch deck. It needs to be made sure that pictures of all partners are there, preferably in similar professional outlook, clicked at similar zooms, preferably in professional or no background

9. Simplifying the content: We work on multiple concepts that are very “Sciency” and “Academic”, like a core tech, topics that are purely academic, a scientific breakthrough or global epidemic. Material that is available on the topic is good for pursuing a doctorate but the idea is to simplify all these core concepts to the level that is easily understood by investors and in the least amount of time.

There may be several other things that might be important for a pitch deck in a niche area or a specific situation, but almost all the winning pitch decks in our experience have these common characteristics.

Magistral (www.magistralconsultig.com) has worked with multiple firms like Private Equity, Venture Capital, Investment Banks, and Asset Management companies in supporting their fund-raising efforts. We have prepared logos, website and website content, pitch decks, project plans, industry reports and financial modeling that support the fund-raising efforts of our clients.

The author is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any queries or work samples.

 

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