How to get your startup ready for investment

This week marked the 5th annual Mesh web conference in Toronto. It brings together entrepreneurs, journalists, and people working in digital from across Canada. Speakers came from all over North America and included author and cyber crime expert Joseph Menn, journalist and professor Jay Rosen, and even the man behind the United Breaks Guitars viral phenomenon Dave Carroll. Many of the keynotes and panels discussed trends of the moment – privacy, security, the real-time web, and the future of news. There were also some startup-focused sessions, including Mark MacLeod’s workshop entitled Getting your Startup Ready for Investment. Mark is an entrepreneur and startup veteran – he’s been leading finance and operations for Angel and VC-backed startups for over 10 years. Currently he’s the CFO at Tungle and Akoha, two Montreal-based startups we have profiled recently in Sprouter Weekly and on the blog.

Mesh attendees Lee Dale, Rochelle Latinsky & Rannie Turingan

Mark’s presentation at Mesh was full of practical advice for entrepreneurs who are getting ready to look for investment. He talked about the pros and cons of looking for outside investment (pro: access smarts. con: loss of control), and discussed how much to look for – from the idea phase right through to Series B funding. He then went through his fundraising checklist – what you need if you’re going to approach investors. Number one was pro formas, which typically includes core financials, a hiring plan, and a capital expenditure plan. For the pitch and executive summary Mark went through each key requirement:

• About your company
• Your team
• The problem you’re solving
• The market (size, landscape, competition)
• Your solution
• The business model
• Go-to-market
• Forecast
• Use of proceeds – what are you going to do with the money?
• Summary

He then went over what every entrepreneur needs to know when they walk in the door for a pitch.

• Business – You need to know your value proposition – what makes you unique?
• Industry – the key motivation for buying your stuff
• Numbers – need to know your metrics, financials and cash burn. Mark says you can delegate this to other people, but shouldn’t abdicate it. If someone hands you numbers without an explanation you can’t speak to them in meeting.
• Comparables – competition and relevant exits
• Strengths & weaknesses – don’t hide weaknesses, everyone has them!
• Strategy – how will you build a big, valuable business
• Audience – why are you pitching that specific investor? Who have they already invested in? And are there synergies with portfolio companies?
• Needs – how much money will you need until an exit?

Mark MacLeod during his Mesh presentation

Mark says that most entrepreneurs have the same response when investors ask them about their exit plan. “We’re either going to go public or we’re going to get acquired.” He says that’s the worst possible answer. Prolific Angel investor Ron Conway’s benchmark is that if he can’t think of 10 companies who would buy the startup, he won’t do a deal. Mark says that at the end of the day no matter what your story is, investors get in to get out – as an entrepreneur you need to be very clear about how you’re going to enable that.

He talked about what a startup needs to pitch successfully – including traction, users (a small number is fine as long as they’re increasing), usage, metrics, and feedback – after all, investors need to know there’s something real, and that someone other than the entrepreneur thinks it’s good.

Finally he talked about the difference between Angels and VCs. Although the end goal is the same for both, he says different approaches apply for each. His entire presentation was full of great advice, and we recommend you check it out below:

You can get in touch with Mark on Sprouter at @startupcfo.