‍Fundraising pitfalls

The fundraising journey is a pivotal moment for any technology company. It is a blend of art and science, where financial acumen meets strategic storytelling. But where do you start? And how do you sidestep the common pitfalls that can be detrimental to the process?

We are experts in finance, technology and data. By leveraging these expertise, along with insights provided by our extensive network of technology investors, we have compiled a set of guidelines tailored for technology companies.

Mastery over financial metrics

The importance of being fluent in your financial metrics cannot be overstated. Technology companies must have a clear understanding of their key metrics, such as: retention rates, cash runway, sales effectiveness or forward-looking profitability figures. Presenting inaccurate financials is a surefire way to diminish investor trust. Conversely, a clear grasp of your financial drivers can immediately captivate potential investors.

Grasping your market’s full potential

When charting financial projections, it is essential to ground them in a realistic assessment of your Total Addressable Market (TAM). This is particularly crucial when courting venture capitalists for early-stage funding rounds. Demonstrating that your business has the potential to be a high flyer in their portfolio is vital.

Distinctive proposition in a crowded arena

What makes your company the shining star in the competitive landscape of technology companies? Conveying your differentiators against your competitors can be the turning point in a pitch. It is crucial to articulate why an investor should back you over other promising ventures.

Balancing operational excellence with fundraising efforts

Fundraising, while essential, can be a demanding endeavour that diverts attention from core business operations. Despite its time-intensive nature, it is paramount to maintain business momentum and consistently meet near-term targets. After all, showcasing ongoing success is the most persuasive testament to your company’s potential. Achieving this balance hinges on a solid team and a well-formulated strategy.

The perils of foregoing expert guidance

Treading the fundraising path without seasoned advice can lead to missed opportunities, less-than-optimal terms or protracted negotiations. Expert advisors bring invaluable assistance, such as: crafting investor materials, spearheading investor outreach and overseeing due diligence. Their role often becomes the linchpin, ensuring the management team is shielded from undue stress and can focus on presenting the best version of the company.

Fundraising and storytelling share a common thread: both thrive on structured progression. It is imperative to carve out a distinct and efficient roadmap so that investors understand your process and feel they are being treated fairly throughout.

Delay or inconsistency in moving investors through the fundraising phases can divert their attention to alternate deals, which undermines the attractiveness of your venture. A tried-and-true methodology that counteracts this comprises:

1. Make initial contact with a concise email on the company and transaction rationale
2. Send a short company overview on the opportunity
3. Hold a management presentation which educates the investors on the key selling points of your business and why you are the right team to capture this opportunity
4. Circulate a financial pack with clear and concise information, including revenue by client and by stream, historical accounting data and a three-year forecast. It is critical that the information supplied at this stage reconciles with the information supplied in the company overview in Step 2.
5. Set a deadline for non-binding offers
6. Analyse the offers and either select a party for exclusivity or shortlist 3 or 4 parties for a second round. If you choose the latter (i.e. a two-stage process), then you would:
   i. Hold a follow-up meeting with the investors to provide more information about your business (potentially a technology demonstration if not done already) and understand how you will work together to achieve the company’s objectives
   ii. Set a deadline for final offers
   iii. Select a party/parties for exclusivity
7. Co-ordinate with chosen due diligence providers (financial, legal, technology and tax)
8. Complete!

For technology companies, the fundraising journey is not just about securing capital; it is about establishing credibility, showcasing potential and building lasting relationships with investors.

The potential pitfalls, such as not knowing your numbers or not understanding your market, can swiftly derail the process. However, these challenges can be navigated by recognising the company’s unique selling points, maintaining business momentum and seeking the right advice.

As with any significant endeavour, an efficient and clear process is the key to success. By following a structured narrative and ensuring consistency in information shared with investors, technology companies can enhance their chances of a successful fundraising process.