There are a number of ways to fund your company’s growth. One way is to take on external capital to support you. However, raising funding is not something that is right for everyone and it needs to be entered into with your eyes wide open.
The path of least resistance is often to take money from people you know but with that comes sense of responsibility to look after it, and some people do not like this added pressure. Taking money from other external sources, be that Angels, Family Offices or Institutional Investors will also change the dynamic of your Company. Not only is the process time consuming and distracting but simply put, it will no longer be your Company, as you now have shareholders and with it comes expectations and obligations. That said, raising money is typically something a Founder will need to do so the aim of the session was to arm the Fellows with some tips.
The emotional and mental impact of fund raising needs to be considered but at the SLP session we focused mainly on the more practical aspects of it. We had some external guests join the night to pass on and share tips and advice. My aim of the class was to cover late Seed / Series A, as this is the point when typically Founders see their first terms sheets. If an Angel sends you a term sheet, you should walk away, they clearly don’t know what they are doing!
Preparation and setup of the class
I was grateful to have spoken to previous SLP class organisers who passed on some great tips of what worked well and what didn’t. My intention was to tweak a little it to allow as much interaction and exposure to the guests as possible.
I also tried to engaged with the Fellows a bit over the Christmas period via email and WhatsApp, including sending them an example term sheet so they were familiar and also asked them what sort of topics they wanted me to cover. It was good to get a feel of what the class wanted before the event.
With the class falling just post-Christmas, it meant that briefing the guests ahead of the class was a little challenging. We were lucky to be joined by three Series A funds, two lawyers and two post A founders, with battle scars in place.
What happened on the day?
The guests arrived before the class members so I was a little worried we would have more guest than members. However, in the nick of time everyone arrived. Phew!
I opened up the class with some intros and a brief presentation of my experiences to date of fundraising and some key aspects of a “normal” term sheet, thank you google for helping me here. There were a few comments and questions but after 25 mins we moved to the next part of the night.
We then split into two groups and had two breakout rooms (thanks Deloitte). In the lounge (business class) were the VCs and in the less comfy room were the Founders. Each had a lawyer. After 40 min we swapped the Fellows. It was interesting to hear the different perspectives and the smaller groups worked well.
While it’s part of the job for the Investors, the feedback was positive, and many were interested to hear more about the SLP businesses as they developed.
Retrospective – what did we learn?
There were a huge number of tips shared but here are a few:
For early stage rounds keep the docs super simple – feel free to use template terms but its worth getting a lawyer to check them through. You are unlikely to see a term sheet at this stage.
For your first institutional round – it takes a min of 6 months and often closer to 9 to raise so make sure you start talking to investors in good time, many VCs are happy to hear about your progress and form a relationship with you if you are in their sweetspot. If you are not in their sweetspot then don’t waste your time. Try and get your house in order pre raise (data rooms etc.). Engage a lawyer at the term sheet stage, let them help you early on and before you sign the term sheet. Focus on what is important and don’t forget to keep working on your business, you need to continue to grow during the raise or you may lose your deal. It is hard work and a times stressful. Lots of other items were shared and many myths dispelled.
Message to the Class of 2021
The title of session is a little misleading, I think. While it’s called Term Sheets, I think it really should be called Term Sheets and the Fundraising process. I intentionally didn’t spend too much time on the details of a term sheet as it is something you can read up on or learn it when you need to. We focused more on the fundraising process.
Give me a call and the other class CEOs – I am happy to help. Having guests is incredibly powerful and frankly makes you need to do less yourself, so line them up early. The class timing is challenging so overbook guests as some may cancel. Given it falls post-Christmas I would recommend sending a few messages to the Fellows beforehand to make sure they are fired up and turn up.