Learning & Resources


19-05-2021 - - 0 comments
8 things you must do before pitching to investors

Ivan Hoo, co-founder of Inverse, shares his golden rules for entrepreneurs thinking about launching into a fund raising campaign.

We have been approached by many businesses looking to fundraise. Almost all feel that they are ready to make the pitch, but they are more likely underprepared unless they have been through the process before. A well-planned funding round will be much more painless for the founders and can have higher chances of landing any investments.  

Here are our eight must-do lists before speaking to any investors

1. Business plan/Investor deck

Startup or profitable late-stage business, you’ll need a business plan to pitch to investors. A deck is more common these days, but you may want to supplement the deck with a business plan if you run a very complex and technical business. The documents should communicate your business & revenue model, forecast, traction, team, investment proposition, tax relief eligibility, and all critical parts of the business to explain to investors why they should invest in your business.

2. Know your numbers 

You’ll appear more credible if you know your KPIs and monthly sales; to do this, your management account needs to be up to date, or the information may be inaccurate. It’s pretty easy to do this if you are using cloud software (e.g. Xero, Quickbook). Of

3. Financial forecast and use of funds

The standard financial model is a three statement model (P&L, Balance sheet and Cash flow statement). It captures all the critical numbers in your business and lets investors review and compare them to the benchmarks. Another significant utility of the model is to show the use of funds and demonstrate the connection to your financial growth. For example, suppose you propose spending £200k on paid social activities. What’s the resulting revenue increase, new customers acquisition, and what other overhead expenses do you need to support the increase in sales?

I have written a separate article on financial forecasting, which you can read here if you are interested.

4. Legal - SHA, Articles of association, cap table, founders vesting agreements etc.

Have you got a Shareholders agreement or planning to put in place one? Have you considered all the elements essential to the deal and have received the right advice for them? Some investors want to see founders vesting shares, for example, and some may wish to have the rights to veto certain subjects. Make sure you understand the legal terms and negotiation points before entering the room. You can only confidently and comfortably negotiate with investors if you speak their language! 

If you have directors loans or have money lend to the business by a connected party, make sure there is a term loan agreement with clearly outlined payment terms. Some of these terms may affect your tax relief eligibility, so make sure you understand the rules around this. 

Also, disclose your company group structure and clearly state the interconnection between the various parts of the group companies. If there’s any potential conflict of interest, make sure you identify or look at how you can remove them. Investors can get spooked during the due diligence if they discover any surprises not previously disclosed.

5. Tax relief

According to a survey conducted by the UKBAA, 86% of angel investments in 2018/19 happened with tax relief (EIS or SEIS). If your business is qualified for tax relief, you can apply for advance assurance from the HMRC. This is a confirmation that you are eligible to issue shares under the tax relief scheme based on the initial assessment of your application (business plan, financial forecast).

Some funds also benefit from tax reliefs. Take EIS/SEIS micro-funds. They are mandated to only make investments into companies that can offer tax relief. Having the assurance letter means that you will not be wasting theirs and your time.

6. Data room 

After ticking all the boxes above, you need a place to house them. If after hearing your elevator pitch and the investor is interested in following up, his/her next step will be conducting due diligence. Rather than sporadically emailing investors to answer their documents requests, you can save both of you plenty of headaches if the documents are organised in folders, available to download through a link on Google Drive or Dropbox. You will also come across professional and experienced, definitely a plus on the investors’ scorecard!

Other than the documents mentioned above, you may want to include IP ownership documents, employees/contractors agreements, board resolutions and minutes, commercial contracts with customers or Letter-of-intents from prospects.

7. Research your investors

There is no point pitching to an angel for £2m investment if he is only ever going to invest £50k-100k; conversely, it is a waste of time pitching to a top tier VC fund for a £200k cheque if their ticket size starts at £2m. 

Investors or funds have a regime they would usually invest in; it may be specific to sectors, stage of business, raise size or business model. Some may be happy to lead a funding round, but some will only co-invest. This information is usually listed on their website, so you should do your research before approaching them. If it’s angel, check Crunchbase or Linkedin to find out what topic interests them or what they have recently invested.

8. Be prepared for challenging questions and be gracious to rejection.

Not all investors are friendly, and sometimes you’ll get challenged or get critical feedback. It is a good idea to run through the most challenging questions and write them down in advance for your record. Get your friends/families or advisors to grill you before climbing the hill to face the dragon.

Finally, don’t get discouraged. The worst answer is a NO, but you’ll walk away with a better idea of what might get you a YES with the next investor.  

Ivan Hoo is the Co-founder of Inverse. He spent 4.5 years at Crowdcube as a Senior Analyst and has advised 68 companies in raising over £54m in equity finance. With a degree in Natural Sciences from Cambridge, he is also a certified Financial Modeling & Valuation Analyst from the Corporate Finance Institute. 

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