Things to do Before Raising Funds: How Qapita Can Help

Raising funds from investors can be an arduous process, especially for first-time founders unfamiliar with the process. Founders do not realise that raising funds can take quite a while, from a few weeks to a few months.

We have compiled a list of things you can do to facilitate the funding process!

Set a Funding Target

Qapita helps you understand equity dilution.

While this may sound like a no-brainer, determining how much capital to raise can be quite challenging as it involves a multitude of factors, such as valuation and dilution.

Depending on which funding round you are at, the amount of capital needed would also vary significantly. For example, seed funding would average around $1 million while Series A would be around $10 to $20 million.

To figure out how much you need, the first thing would be to look at comparable companies and how much they have raised in the past.

Other things to consider would be the capital required for product development, future expenses, potential market opportunity, and the list goes on. Investors will want to know what you will be using the money for.

Moreover, raising a seed or series round can take up to a few months. Hence it is crucial to manage your runway. Your funding target needs to take into consideration how much funds you have before you run out of cash. You definitely do not want to risk running out of cash before closing the round!

You can do scenario modelling with Qapita to determine how much you should raise

Decide the Financing Instruments

Qapita helps you model different investment instruments and their impact on the cap table.

Aside from the funding amount, founders will also have to determine what type of financing instruments would best suit the company. There are many different types of financing instruments to choose from and founders have to weigh the pros and cons of each.

Different types of financing instruments may also be more suitable for different rounds of financing. For example, convertible notes or SAFE notes are better for a seed round, whereas, full equity instruments may be better for Series A and above.

Founders need to understand the effects such financing instruments will have on the ownership structure and choose the most appropriate one for the round.

Let’s understand these fundraising methods in detail:

• Angel Investors: Angel investors are usually high-net-worth individuals. They infuse funds in a startup at its early stages - potentially even at a business plan level or prior to achieving product-market fit. They invest in the form of convertible notes or straight equity. Convertible notes are different from normal shares as they only convert into equity in the future.
• Venture Capital: Venture capitalists are a group of investors who fund early-stage high-risk startups with the expectation of a high rate of return in the future. Here, venture capitalists pool their or their limited partners' money to a venture capital fund. The fund is then disbursed to potential startups. The significant advantage of venture capital funding is that you get access to institutional capital which is more convenient as compared to dealing with multiple angels. In addition, you get expert advice and mentorship from experienced venture capitalists. VCs typically invest in convertible instruments or SAFE notes.
• Accelerators: In accelerator funding, prospective startups are provided with funding, mentorship, and access to educational programs. Accelerators may invest in a small stake but may expect a stake for mentorship as well. But unlike other fundraising avenues, accelerator funding has stricter norms like: Competitive application process. Preference to teams rather than solopreneurs.

Be Transaction-Ready

Qapita helps you organize your business documents for due diligence.

Having your business documents and paperwork prepared and ready for investors will decrease the time needed during funding and also form a good impression on prospective investors.

Some documents commonly required during raising funds are:

• Company Constitution
• Statutory Books
• Shareholders’ Agreement
• Employees’ Information
• Business Financials
• Intellectual Property
• ESOP Scheme
• Cap Table

Setting up an ESOP program is a common requirement before raising funds from VCs.

These documents are required for investors’ due diligence during fundraising. Closing a seed or series round can take up to a few months, and the bulk of the time is often spent looking for these documents.

Hence, having them together in one place prior will significantly reduce the time needed to track them down individually.

Have a due diligence checklist to ensure you do not miss out on documents required during fundraising.

Digitise Your Cap Table

Qapita keeps your cap table accurate and updated.

A cap table is the most important document that investors will ask for due diligence. Investors often begin by looking at the cap table to understand the ownership structure of the company, who are the current investors, the types of shares issued and the employee option pool.

This will help investors to determine the manner of investment into the company A cap table should be error-free, up to date and verifiable. It would be a huge red flag for investors if your cap table is not well-managed and has inconsistencies.

While a cap table may be simple enough to manage prior to seed funding, as the company grows, complexity increases and the chances of errors increases significantly.

Common  CapTable mistakes cap table mistakes such as typos or rounding errors will accumulate with each version of the update. To ensure that cap tables are accurate and free of errors, consider digitising using cap table software like Qapita!

Raising a round requires tremendous effort and can take a while. With adequate preparation and practice, you can definitely raise funds to grow.

Talk to Team Qapita to learn more about managing your capitalisation tables and how to make your equity management simple! info@qapitacorp.com

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