The fundraising guide: all the steps to follow to succeed in your fundraising

In 2021, fundraising reached record levels: amount of companies that raised funds or money allocated by investors, all indicators were a green light for startups. Although this trend will be down in 2022 (due to the ECB rate hike and the Ukrainian war), all points at that fundraising will continue to be used by startups.

Read more: What are the 10 biggest fundraisers in 2022?

Why raise funds for a company?

Fundraising is a financial operation that must meet the demands of the company. Indeed, a fundraising means above all a dilution of the company's ownership. By investing in your company, the business angels and investment funds become shareholders of the company, which means that they become owners of part of your company. It is necessary to understand this aspect before beginning a fundraising. The investors must meet certain needs:

• The development of your business (heavy investments, international development, commercial growth, etc.)
• External growth (purchasing of competitors, becoming a leader, acquiring suppliers, etc.)
• Securing your assets (transfer of business or operational buyout)

Read more: Raising funds, is it necessarily a good idea?

What are the steps of a fund raising ?

Raising funds is a financial operation that has become very popular in recent years. With many displayed advantages and very few obvious disadvantages, it seems to be the perfect way to grow your business without taking risks. However, the reality is quite different. The majority of companies that have raised funds find themselves in a bankruptcy situation two years later. Therefore, every entrepreneur must follow certain clearly defined steps when raising funds:  

1) Formally establish your strategy

The first step of any fund raising is the preparation of a business plan. This 5 to 7 year forecast document is an indicator of the company's strategy and its development axes. It is therefore studied in detail by any potential investor. A bad business plan can be dangerous on many levels. Indeed, you could, first, lose potential investors, but also present them with an opportunity to buy you out at a low price and then grow your company, simply by reviewing the management. Thus, a clearly defined strategy projected over 5 to 7 years allows you to put a figure on your financing request and to quickly explain to your potential investors the future profitability of your company.

2) Create and send the pitch deck

This document is a condensed summary of your company: financial statements, organization, development plan, etc. It is sent to the investors you have identified as potentially interested in your company. 

3) The meeting with the investors

The investors who have received your pitch deck and found it relevant want to meet with you to discuss the company's strategy, your forecasts and the management in place. During this meeting, your goal is to convince the investors. For their part, they will have looked for any improvement point or potential downs of your company and will want to clarify with you all the possible grey areas that they have identified. 

4) The letter of intention

Once these first steps have been completed, the investors interested in your company will issue a letter of intent. This is an official document that commits both parties to the financial transaction. However, it is not a binding offer to the investors. If the following phases reveal negative elements, they can withdraw their offer.  

5) The auditing phase

During this phase, the investors hire consultants to carry out financial, tax, operational and legal audits of the company. This allows the investors to verify the authenticity of all the information provided by the company, to dig into all the points that could be problematic and to ensure that the investment will be profitable for them. 

6) The debriefing phase

Following this phase, the different teams debrief each other and decide whether or not to pursue the financial operation. Potential investors who remain interested after this phase are then formally engaged. 

7) Legal negotiations

The legal negotiations represent the purely legal aspect of the agreement: the modification of the articles of association, the shareholders' agreement and the governance of the company. This is the moment when the management of the company is definitively chosen. Does the CEO have all the powers? Do the new partners have decision-making power over the employees? Can they defeat the CEO? All of these questions are resolved and formally defined at this time. 

8) Sending the funds

With all aspects of the fundraiser negotiated and decided upon, the money can be paid out. At the same time, the manager sends the minutes of the Extraordinary General Assembly, which attests to the decision taken. 

9) The closing

The operation is officially completed, all parties involved have signed the documents attesting to the operation. 

What are the investors’ requirements?

Remember that investors are looking for a return on their investment. The financial health of the company must therefore be excellent. To do this, the investor looks at three indicators: 

• The financial performance of the company, i.e. the available cash, the assets of the company, etc.
• Organizational management: fixed assets, working capital requirements, expenses related to operations, everything is analyzed to ensure that the company does not lack funds, only because of poor resource management
• The legal aspect of the company, namely the statutes mainly

Read more: Venture Capital: definition, remuneration and recruitment