As a former startup founder, I know firsthand how critical it is to have the right tools and people on your side when seeking investors and growing your startup.
Part of what’s exciting about my role at Fidelity Private Shares is that I get to work with people on all sides of the fundraising process. I’ve seen firsthand how influential a clean cap table and organized data room can be for founders when they’re pitching potential investors.
I recently hosted a webinar with three impressive startup players. We discussed what they look for and optimize around, when it comes to cap tables, data rooms, and pitches from founders. The panelists were:
- Jodi Collier, Executive Director at Launchpad Venture Group
- Jonny Boyarsky, a Boston-based startup founder and Principal at Athenian VC
- Tivan Amour, a Boston-based serial entrepreneur, mentor, and advisor
If you missed the webinar or want the quick TLDR, I’ve put together some of the tips these panelists shared on winning over investors with your clean cap table and data room.
The importance of a clean cap table and data room
The current fundraising climate is less predictable than we’ve seen in prior years. This can manifest in a few different ways for founders. It might take a bit longer to land capital, deals are coming with less founder-friendly terms, and the due diligence process is becoming more rigorous.
Fundamentally, your cap table dictates who owns your company. It’s one of the most important data points to have in tip-top shape at all stages of your business. The details and nuances of ownership will only get more complex as you grow, so make sure it’s clean from the start. The same goes for your data room. All the important documentation should be organized, stored, accounted for, and ready to be utilized when the time to fundraise arises.
5 things investors look for when evaluating a cap table and data room
Here’s what the webinar panelists said catches their eye when evaluating a startup.
1. Organization from day one
One of the best things you can do to set yourself up for success in the long term is to be organized from day one of starting your business. “In a perfect world, we see a founder who does have their ducks in a row: who has been organized from the start,” Collier said. “Frankly, it just makes it easier for us to invest in you.”
Anything you can do as a founder to make the fundraising process easier for everyone will go a long way.
“Help yourself, by getting ahead of the game and having things organized,” Collier added.
2. Equity has been awarded in a meaningful way
Another way to show potential investors that you’re serious and ready for growth is to display a history of sound decision-making, especially when it comes to granting equity.
"From the moment you incorporate to your Series A, making sure that there's no dead cap table equity is key,” Boyarsky said.
When asking investors for money, they want to feel confident that you’ll spend it well. This includes any equity you’ll offer up.
“Make sure that everybody who's on your cap table earned it, whether it's through capital, or through truly helping advance your company. It’s really important in the early stages” Boyarsky added.
3. Data and documents are in order before reaching out to investors
I frequently see founders who wait until a potential investor asks to see their data room to start organizing themselves. Be ahead of the game by having your data room ready to go before you take a meeting or have a conversation. That way when a potential investor asks to see your documentation or documents, you’re not scrambling.
To do this, and to ensure your whole team is well-versed in your company documents, you can use a due diligence checklist. That way you can be sure you haven’t missed any important steps and that you’re ready when a conversation does come to fruition.
4.You know your company inside and out
Investors are looking for founders that know where to find all their crucial company documents and have a robust understanding of how they affect company operations.
“Not only do you need to have [all of your documents], you need to know [them],” Boyarsky said.
You should know who has equity, how much they have, what the vesting schedules are, any projected revenue or user numbers, and more. Any question an investor might have, you want to be able to answer right there or be able to get them an answer quickly.
Amour recommends a strategy he used for his own investor meetings: formulating answers with a topic sentence and three supporting quantitative points.
“That always makes sure that your answers are concise enough that you get the meat of the argument without running out of time to answer other questions,” Amour said. “It communicates that you're a logical thinker and that you’re organized.”
5. A concrete plan for new capital
Be prepared to answer the question, “What do you plan to do with any new funds?” Be able to explain why you’re fundraising now and how you plan on spending the new capital. Share any details you have, like whether you have new expansions or product launches in the works. If you’re adding to your team, be specific; you can even let investors know who you have in mind for new roles.
Once you start dealing with Angel syndicates, traditional VCs, and corporate VCs they're going to expect to see a lot of detail about how you plan to spend money. It’s best to show strong conviction in your plan.
When it comes to your cap table and data room: The process is the proof
Remember that investors might come into a pitch meeting ready to poke holes in your presentation and find out whether you’re a good investment for them. That’s why it’s best to be organized from day one.
I like to say, “The process is the proof.” The process you use when managing your cap table or when running a fundraising round is proof of how organized you are and how responsible you are with other aspects of your company.
Part of being prepared for the toughest questions about your business and its future involves having a clean cap table and an organized data room. All of your important company information should be shareable and ready for the eyes of potential investors.
It might sound daunting to keep such nuanced and complex information about your growing business ready for the eyes of investors, but that’s where Fidelity Private Shares can help. Our platform helps founders manage their equity and automate their data room so they can stay ready for investors. Schedule a demo today.
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