Fundraising for High Growth Companies: Critical Success Factors

By Kenton Chow

If you are the CEO of an emerging company seeking capital for growth, developing the right fundraising strategy needs to be one of your highest priorities. The decisions you make about which investors to target, who to take an investment from and the relationships you form with them will be critical to your success. These decisions will impact your company’s future, not only over the short run, but also over the longer term as you continue to scale for growth.

Having worked with rapidly-growing companies across SaaS, consumer, e-commerce, data center infrastructure, life science, retail tech, networking and semiconductor sectors, I’ve had the privilege to raise over $500 million in private, venture-backed, public equity and debt financings for early to late stage private (Series A to Series E) and public companies. These financings provided the necessary capital that enabled the companies to achieve a profitable liquidity outcome for investors (M&A or IPO) or continue as independent organizations.

I believe there are five critical success factors CEOs should pay attention to when raising capital:

#1: Target the right amount of money to raise

Particularly for earlier stage companies, one of the biggest mistakes a CEO can make is not accurately assessing the degree of working capital necessary to reach the next technical or product development milestone.  CEOs should consider adding a cushion to their expected raise target to ensure that they do not have to restart the fundraising effort at the eleventh hour in order to finish the job.   Since dilution is such an important issue in these early stage raises, not having to revalue the company again and deal with fundraising earlier than expected, pays off in spades. Run the numbers and then be conservative in your operational and financial forecast.  The number one reason why companies don’t make it is insufficient capital.

#2: Know exactly what you will use the money for

Your story to investors, your pitch, will be all about creating value for your company and for your investors. You must create a compelling narrative with evidence around executional proof points and projected results which is market-vetted, logical, data-scrubbed, and saleable. You should be able to articulately address exactly how you will use the capital investors are investing from customer acquisition to product development, from go to market and market expansion to building of critical infrastructure as well as how you will handle any contingencies.

#3: Champion your vision for success

Building a business for long term success is hard work.  In addition to creating a compelling business and ROI case for investors, it is essential to have a long-term vision for your company.    I sometimes hear entrepreneurs says that  “I want my company to get bought by Google, Facebook or Salesforce”. That is not a vision, just a desire.  I always say “great companies don’t get sold, they get acquired.”

Great CEOs want to build a large, independent company and have conviction, passion and vision to do it.   Have a great vision of how to build a long term value and exit opportunities will surface.  CEOs and investors alike lead from great vision and strength.

#4: Target and choose your investors very, very carefully

Investors vary from one another in important ways and you need to factor all these into your selection of your ideal investor profile. Ultimately you need to build a robust pipeline of investors, recognizing they won’t all come to the table, you need to quickly develop a target set of investor attributes for your potential investors. Consider these variables for example:

• At what stage do they typically invest?
• Do they tend to lead a round or do they never lead?
• What are their parameters for investing? Do they have ownership minimums?
• Do they have the cash resources and bandwidth for follow-on rounds?
• Will they require a seat on the board?

Once you have identified a group of qualified prospects, prioritize your list, network your way to a connection and then go after your top tier potential investors. Landing your lead investor and solidifying pre-money valuation and terms will enable you to more efficiently persuade and negotiate with the remaining investors who are not leading the round.

#5: Pay attention to chemistry

Finally, your relationship with a new investor is different than the one you have with your banker, auditor, distributor or supplier. Investors have not only the capital and financial capacity to support your company’s future, but also come armed with a network of important relationships and often unique, sector-specific experience which can tangibly benefit you. These investor assets can become essential competitive advantages for your company as you grow and scale your operations over time. Every investor relationship should be viewed as a long-term investment for your brand as you ideally want to tie your future to investors who will stand with you in good times as well as bad if need be. Lastly, chemistry matters. A good fit between investors and a management team is essential to working successfully together, professionally (and often personally). Make sure your investors and management culture are synergistic.

At FLG Partners, we differentiate our partnership, among other factors, with our deep  fundraising experience for our clients – from venture capital and private equity  to IPOs. If your high-growth company needs fundraising help, do get in touch. We’d be happy to assist.