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Use these tips and due diligence checklist to prepare for a VC fund raise

By David Schwartz
Published: September 21st, 2011

Matt Viras writes on the OpenView Blog that the key to a successful and pain-free venture capital raise is to be informed, prepared, and engaged. Start fundraising 12-18 months before you need the money, Viras suggests. Spend a year qualifying VCs by building relationships and getting to know them well enough to qualify the ones you like from the ones you don’t. “Picking a VC is not about the money,” he writes. “It should be all about picking the right firm with the culture and expertise that fit your company’s culture and aspirations.”

During the courtship period, don’t shut out VCs. Take their calls and give them an overview of the business. “Keep that dialogue open on a quarterly basis,” Viras advises. “You can’t be too busy for that.” Hire a vice president of finance, and start putting an investment package together six months before you’re ready to begin a fundraising process. The package should include:

  • Company presentation: Build a PowerPoint presentation of no more than 20 slides. Tell a story, starting with the company and its aspirations — the “why.” Then talk about the customer problem that you solve and how, the market and competition, and your product differentiation. 
  • Company financials: You don’t need an audit by an accounting firm to raise a round, but you do need to have a full set of financials — at a minimum, the P&L, balance sheet and cash flow for each year since inception.
  • Company economics: Highlight key metrics that are critical to running the business. “Pre-funding, start-ups tend focus on cash flow,” Viras says. “Post-funding, you will be tracking the economics of the business.” He suggests monitoring metrics like new customer booking growth, the economics of new customer acquisition, and existing customer growth and churn.
  • Prepare for legal diligence: Retain a lawyer who specializes in VC deals. “Having a good lawyer is much more important than having an investment banker,” Viras says. Your lawyer should pull together your current option plan, employee confidentiality agreements, IP documents, incorporation docs, board resolutions, customer agreements and contracts, and software licensing agreements.

To see OpenView’s pre-term sheet due diligence template, visit OpenView Blog.

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