Nauta’s Investment Associate, Theo Wethered, recently joined a panel discussing: ‘How to prepare your company for fundraising and due diligence with investors’. Below are his thoughts on the topic, and here is a set of (basic) template documents that might be helpful in the preparations. 

For context: Nauta Capital is a Seed and Series A stage B2B software fund in the UK, Germany, and Spain (hence the references to typical B2B metrics)! Likewise, the level of detail that we might go into is representative of being Seed/Series A investors (treating most opportunities like a Series A investment with fairly detailed analysis). Having said that the principles are the same for B2C and earlier stage businesses. 

Understand what your company needs to look like LONG BEFORE the upcoming round  

A great example of this was when Cristina, CEO, and Founder of Cledara (now a Nauta Portfolio company) spoke to us just after their Pre-seed round in 2019. She quickly asked: “What would a Seed investor expect to see in terms of metrics and otherwise when we come to raise in 12-18 months“. 

It’s hard not to be impressed by how direct this was and that she was already planning ahead and thinking about what she needed to deliver well in advance. What was even more impressive is that 12 months later the company ticked all the boxes I mentioned and met all of the milestones in line with what she had promised. If you have an investor reach out for a conversation when you’re not raising a round, this can be a great way to use that time. 

How you run the process shapes an investors opinion of you (even if it’s not deliberate): 

This is probably the most important and holistic point on the list. Investors are going to have to work with you and trust you for years to come and the only litmus test they have for what that experience will be like is based on how you run the fundraising process. The best practice examples we’ve seen for this have been where founders had everything we’ve asked for ready, or if they don’t have it ready-made they delivered it exactly when they said they would.

For example, AppFollow (also Nauta portfolio company) sent a clear, well-designed deck that piqued our interest with a good overview of key metrics and a very clear explanation of why their customers love the product. We emailed to suggest a meeting, they quickly responded and we had something scheduled within minutes with minimal back and forth (there was actually a Calendly link in the deck, so we were responsible for adding those additional few minutes to the process). After the first call they immediately sent a link to their historical financials, and cap table, as discussed in the meeting (other best practice examples we’ve seen are a Notion page, Google drive/Dropbox link with a data room, and even investor FAQs). A lot of company building is about building effective and efficient processes, so any investor’s impression during this kind of experience is “if this is how effective the founders are at running their fundraising process, then the sales, onboarding, etc. processes will probably be pretty efficient too” and likewise, “being on the board of this company is not going to be an uphill struggle”.

Finally, people get distracted, so you should strike while the iron is hot – an investor’s enthusiasm for your company will only drop as time passes (often as quickly as after the first 24 hours following the call). Make sure to do prompt follow-ups – if the investor is interested they will appreciate it. If they’re not, then they’ll tell you “no” sooner and save you some time. 

Know your numbers… and your business 

“How much revenue did you make this month and last month? What’s the MRR? What’s the gross margin? and unit economics? What’s the YoY MRR growth? Cost per acquisition? Marketing/sales conversion rates?” 

VCs are biased to think that knowing these numbers are important because we spend a lot of time thinking about them, which is unfair since being amid running a business there are other things going on. However, it is hard not to be impressed when talking to a founder that knows their business and their market inside out compared to someone that doesn’t. 

Know where the company needs to improve and how to do that 

No early-stage business is perfect, in fact, they’re usually far from it, but an investor will always be impressed when the founder knows exactly what they need to do to scale to the next stage. An example of this might be a founder saying “my biggest concern at the moment is that 80% of our leads are founder-generated; we’re aiming to hire two SDRs for lead generation and improve our content marketing after the raise, as well as develop xyz other initiatives.” 

Never, never mislead  

The investment process is about building trust that you’re someone the investor want’s to work with for the next 7-10 years and entrust with a significant amount of money (usually including their own). They will be far more impressed by a founder that is transparent and open to discussion (as above) than someone that inflates their metrics misleadingly or sells a rosy story that everything is perfect (which it never is).

You are still selling a vision and painting a compelling picture about how you are the right team, the market is big and ready, but you can also talk honestly about the things that you need to pay attention to in the meantime. It’s safe to assume that if you deliberately hide things in early conversations they will come up in due diligence and it will sour the relationship. 

The boring bit – preparing documents: 

Typically an investor (Seed and Series A stage at least) will want to see the following. Some standard (but basic and generic) templates for the kinds of data VCs might ask to see found here.

Stage 1:

  • Deck (there’s plenty of advice out there, but be sure to cover: team, problem, solution, market size, business model and pricing, customer value proposition/ROI/testimonials, go to market strategy, metrics and financial performance, competitor analysis, fundraising amount and overview)

Stage 2:

  • Historical financials: ideally monthly P&L style on an accrual (not cashflow) basis, in a spreadsheet 
  • Cap table (ideally showing progressive investment rounds), with dates, valuations, and investment amounts 
  • Business plan/forecast 
  • Customer level revenue breakdown with key metrics (for B2B)

Stage 3:

  • Organigram (now and post-round) 
  • Pipeline overview / Go to market strategy (for B2B) 
  • Product demo 
  • Tech overview/architecture & roadmap 
  • [plus a range of other requests specific to your market/company] 

You’re doing DD too 

An investor is assessing whether they want to work with you for the next 6-10 years and you should do the same to them. Turn some of their questions to you into a discussion – if they think about your company in a very different way to you then you probably don’t want to give them a board seat and voting rights in the company you’ve spent thousands of hours building! 

Of course, none of this will guarantee success, but it makes a difference and will make your life much easier if done right.

Written by Theo Wethered