The role of corporate finance advisors in capital raising is well established. For businesses moving through the growth stages and eventually onto the public markets, ‘managed’ fundraisings and the brokerage business model that underpins them is the accepted norm.
But this approach doesn’t work for startups.
Investors, especially VCs, want to deal directly with founders who they expect to be running the funding process themselves. For first-time founders, this can be a daunting challenge. Duet’s ‘guided fundraise’, which uses an approach proven in $100M’s of funding projects, can give founders the leg up they need.
Investors must build conviction
The corporate finance industry has historically seen capital raising as a transactional process. Advisors essentially project manage this process on behalf of the company. They act as intermediaries, facilitating each step with investors from first meeting to money in the bank. The company CEO, often together with the CFO, only steps in to pitch the story and answer due diligence questions when required.
For established businesses, this works. The company’s business model is already humming. The investment proposition is heavily based on a narrative of revenue growth, evidenced by key financial metrics that are hopefully tracking nicely. Even though the vision of the founders is still important, the story is now largely in the numbers.
But for startups, the capital-raising process is far from just a transactional event. Many aspects of the proposition — the product, the business model, the go to market strategy, the financial projections — will still be in a state of flux.
The proposition is evolving even as the pitch deck is being written.
Early-stage investors must build conviction from the mists of great uncertainty. So they carefully assess the team, their vision, the market opportunity, and the plan to execute. To get the clearest understanding of the risk/reward balance, they must deal directly with the founders. This might all end up in a transaction, but the emphasis is on relationship building.
The conventional corporate finance model therefore doesn’t work in the early phases. But this places a huge burden on the startup’s CEO/founder, who must manage the entire funding process as well as running the company. This is even more challenging if the plan is to attract institutional investors, such as VCs, for the first time.
The pressure is at its highest in the Seed to Series A transition. Here, over 80% of startups fail to graduate, so already the odds are stacked. Managing a funding campaign at this stage is always stressful, particularly when the cash runway is getting tight. It often just blows away the day job.
Founders are looking for help
Founders are constantly on the lookout for any means that will lighten the load. But finding assistance that is both practical and reliable is hard. Accelerators, like Entrepreneur First, Founders Factory and others, can provide a valuable training ground, but at best can only ever reach a small percentage of all the founders that would truly love more support.
There is lots of other well-intentioned advice out there, especially online, but the provenance is not always certain and it’s rarely a close match with the founder’s own unique circumstances at the time.
This is not ideal for a high stakes project that could determine the success or failure of the business.
In response to this need, Duet has developed an approach that supports founders in their capital-raising quest at early stage, aimed specifically at Seed and Series A rounds. We call this the ‘Guided Fundraise’. Founders leverage our proven campaign framework, our extensive investment research capability, and our experience from dozens of capital-raising projects.
We are at the founder’s side right though the live funding process, increasing the efficiency of their own bandwidth and enabling them to lead the campaign with greater confidence.
The Guided Fundraise — Framework
The Guided Fundraise is a framework comprising 3 key elements:
- Funding Process — What is our plan? What are the key steps we need to take?
- Investment Research — Who is our audience? Why will they invest?
- Best Practice — How do we execute our plan on the ground?
Taking each in turn:
1. Funding Process — the key steps to investment
A goal without a plan is just a wish. A plan sets out the steps, enables progress to be monitored, and ensures nothing is forgotten. It also keeps all stakeholders (the founders, their senior team, the board, existing investors, and other professional advisors) in synch so efforts can be coordinated.
There are 4 core steps to the process: Preparation, Outreach, Solicitation and Closing. Key elements of each step (these are not exhaustive) include:
Preparation
- Funding objective — What timeline are we working to? How much are we raising? What are we going to spend it on?
- Investor longlist — How do we identify relevant investors to approach? What’s in it for them?
- Investment materials — How do we create an awesome pitch deck? What other materials are needed for this stage of investment?
Outreach
- Investor shortlist — Which investors will be the very best fit for our business and be our priority?
- Personalised approaches — Who is the best person to reach out to at each of these investors? How do we create a tailored approach? Is there potential for a warm intro?
- Phasing — How should we phase the outreach to suit our strategy and timeline?
Solicitation
- Pitch meetings — How do we manage the meeting? How do we deliver our proposition in the most effective manner?
- Investor relationship — How do we build excitement and trust? How do we create and support our investor ‘advocate’?
- Due diligence — What evidence will investors need to see? How do we make it easy for them to access and evaluate? What due diligence should we perform on investors?
Closing
- Investor process — How will investors reach a final decision? How do we keep this on track?
- Timeline — How do we build momentum in the campaign and keep everyone moving forward together?
- Term Sheets & Investment Agreement — How do we negotiate fair terms and conclude the deal?
Knowing the key steps is important, but you can’t just ‘checklist’ your way to success. This is a sales process, so you must first identify and understand your audience. Then you must deftly execute your plan to bring the right investors on board.
2. Investment Research — identifying and understanding your audience
Today’s best investment databases are incredibly powerful research tools. One of their key capabilities is enabling the efficient discovery and initial screening of relevant investors — both at the fund and partner level. This is at a degree of detail that was just not possible only a few years ago.
As the investment world has become a smaller place, the scale of the top-tier datasets has mushroomed, some now detailing millions of companies and deals, hundreds of thousands of investment professionals, and tens of thousands of funds, right across the world. With cross-border investing becoming common at all stages, such global information is now essential.
Well-matched investors
By first building a ‘deal profile’, a target list of investors can be created by analysing historic investments by company stage, industry, business model, geographic focus, typical ticket size, fund size, assets under management (AUM), and many other useful parameters.
Being able to easily pivot datasets between companies, the deals they have done, and the investors that have invested, allows an iterative process that quickly refines the fit. This can incorporate an assessment of an investor’s individual funds (and even the Limited Partners within each fund) to determine dry powder levels.
A list can then be broken down into categories of most interest. For example, the TYPE of investor (e.g., VC, Corporate VC, Family Office …). This is important as the needs and requirements of different types of investors will vary and the messaging will therefore need to be tailored. Investors that have invested in direct competitors can easily be excluded from a final shortlist.
In the funding process, time is the ultimate enemy. Wasting time chasing poorly matched investors must be avoided.
Personalised approaches
It’s also a big advantage to know the most relevant partner to approach at each investor. The best datasets will not just reveal details about the fund portfolio but the full investment biography of each partner. This information is key as it enables strong personalisation of each approach.
These powerful research tools also help inform the overall funding strategy. Advanced analytics and machine learning enable further discovery. For example, assessing competitors, researching financial comparators (such as valuations), M&A deal activity, IPOs, and emerging market trends. This provides many insights that are simply not available through other public research.
Duet uses these platforms on a day-to-day basis. Just as in every other facet of business life, data analytics is revolutionising how we research, develop, and execute funding strategies. Every player is looking for an advantage. In the competition for capital, information really is power.
VCs and other institutional investors use these very same datasets, such as Pitchbook and CB Insights, to arm themselves with intelligence on companies of interest. To level the playing field, it only seems fair that founders have access to equivalent information about investors.
3. Best Practice — Executing your plan to bring new investors on board
Like any big-ticket sales process, a well-executed funding campaign is part art, part science. The science elements of the framework are the Funding Process and the Investment Research described above.
The ‘art’ is in the application of these through a live campaign. We help guide the founder though each phase, interacting on all the major questions that occur. Our support model is based on 3 key pillars:
Collaborative — Founders leverage Duet’s experience from working with dozens of startups and helping raise $100M’s. Using our proven framework, we coach founders 1/1 through the process step by step, passing on knowledge as we go. Founders lead and learn.
Discrete — We operate behind the scenes, supporting the founder and their team with coaching and advice, backed up with the very latest research and market insights. Founders develop direct investor relationships without an intermediary getting in the way.
Flexible — Although we use a proven framework, the support is tailored for each individual founder. Some need more help in certain areas rather than others. Over an agreed monthly baseline, the amount of support can be varied to suit the specific needs of the founder during the campaign. We can even make introductions to investors we know well.
A campaign can last months so the emphasis is on keeping the momentum up. It’s often the seemingly small things that can really slow the process down: e.g., How to construct the cold approach email? How to prepare for due diligence? To keep ahead of the game, we also provide best practice guides for the key steps, incorporating practical tips, worked examples, and links to other useful resources.
But often the most valuable aspect for founders is the one most underestimated at the very beginning — having a sounding board available 24/7. Like any major sales cycle, the unexpected will undoubtedly happen, often requiring urgent attention when it does. The clock is always ticking on a fundraise. Having someone on hand who’s been down this road before can help relieve the pressure and save valuable time.
The role of the startup founder is often over-sentimentalised. The reality is usually very different as so few finally make it through to a meaningful exit. The early stages are exhausting, uncertain, and often quite lonely despite the constant buzz of the creative process. Undertaking a funding round only ratchets up the pressure.
The Guided Fundraise provides founders with the support they need at this most critical time, increasing their effectiveness, and enabling them to lead the campaign with greater confidence.
John Hall is CEO and Co-Founder of Duet Partners Ltd. Duet is a startup to scaleup advisor that supports ambitious founders in the development and execution of funding campaigns at Seed and Series A. We’ve worked with some of the UK’s most exciting startups over the past 12 years, helping raise $100M’s
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