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Fundraising Simulator

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Topic 11, Lesson 2
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Early stage funding – A CFO’s insights

Dan Wells October 26, 2021
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During this video, Cathy Murphy shares some top tips from her CFO role at TalkLife, regarding her recent experiences of leading several fundraising rounds totaling millions of dollars.

  • Fundraising requirement: Start by thinking long and hard about how much you wish to raise and why you need the cash.  This requires you to together a realistic model of your likely cash flows during the next 12-18 months to determine your shortfall requirements.  This can be particularly challenging for early stage companies, for example if you are pre or early revenue.  You will need to sit down with your management team and agree your assumptions together, by considering the growth of similar businesses and your total addressable market.
  • Valuation: You need to determine what valuation you wish to raise at.  This can be tricky for early stage businesses with negative EBITDA.  Consider using a corporate finance team, although there are many things that you can do yourselves such as benchmarking against similar companies and utilising tools such as Crunchbase.  If things go to plan, then you should be able to increase your valuation as you achieve specific milestones.
  • Timeline: Once you have determined your fundraising requirement and valuation, you should identify your desired timeline and when to start fundraising.  Start by calculating your cash runway to determine when you will run out of cash.  You will need to balance this against your predicted timescales for achieving significant milestones or revenue growth, which may help to justify a higher business valuation.  Remember to factor in potential delays and time-consuming activities such as obtaining shareholder approvals – fundraising nearly always ends up taking longer than planned!
  • Tax-relief: Consider making the investment as attractive as possible for potential investors by getting EIS or SEIS relief.  This can enable the shareholders to benefit from income tax relief or capital gains deferral, and you can get advanced assurance from HMRC.
  • Identifying investors: Identify your target category of investor, such as angels and VCs, and assess your own ability to secure meetings with them directly. You may consider using a corporate finance advisor to benefit from their experience and investor networks.
  • Due diligence: Be prepared for a due diligence process as many investors will want to carry out various checks during a fundraising process prior to finalising a deal.
  • Prepare: Make sure that you are all on the same page before you pitch, brief the management team and anticipate challenges or questions in advance.  Check that you all know your numbers inside out, including your underlying assumptions and scenario analysis.  You will no doubt receive lots of questions from potential investors and you need to be able to deal with these confidently to gain their confidence.