Fundraising? Get multiple term sheets on the table at once

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The ultimate goal for entrepreneurs looking to raise funding should be to get multiple term sheets on the table at once, and Lexi Novitske, principal investment officer at Singularity Investments, has some advice on how to get them.

Speaking at the third annual AHUB in Cape Town this week, Novitske said the best way for entrepreneurs to achieve their fundraising – and post-fundraising – goals is to look to secure commitments from a number of investors.

“Your ultimate goal is to get multiple term sheets on the table at once.  Preferably with one lead,” she said.

While investors will have a number of prerequisites to consider a startup applying for funding – such as product, market fit, traction, team, and scalability – there are other elements entrepreneurs can work on to make their company more attractive.

First, Novitske advises startups to have a well-planned company structure – there are legitimate reasons for incorporating in the US, UK, or Mauritius, for example, and each destination may appeal to specific investors.  Conversely, onerous restrictions on investors in some African countries – including South Africa – could hamper an investor’s interest in a startup.

Founders should also be thinking about putting in place a board, and developing relationships with advisors.  Advisors are a startup’s best friend, Novitske says.  

“Really leverage advisors.  They’re like the talent you don’t have yet,” she says.

While marketing can be great for branding and encouraging uptake, Novitske says startups should be careful about being too “loud” before they’re ready, for fear of peaking on investor radars too soon.

“Investors are biased.  They get bored when they hear about the same ventures constantly,” she says.

“Even if [the ventures]have progressed, it’s difficult for me to change my perception even over time.”

There’s also a couple of things to bear in mind when the moment comes to start approaching investors.  

Novitske says founders must know exactly how much capital they need – not a range – and must be able to explain what the funds are needed for precisely.

“Founders sometimes come with a range – that’s not good enough.  It shows you don’t know what you need.  Similarly, you need to know what your KPIs are for the 18 or so months.”

The importance of finding the right investors can not be overstated. Novitske advises entrepreneurs to thoroughly research the investors they want to approach – to ensure their expertise, expectations, and goals are aligned.

As an example, some investors engage with startups more for market information, rather than with genuine investment intentions, she says; as such entrepreneurs need to ask their own questions about investors’ track records and recent deals.

Similarly, the expectations of investors differ – some may need quick exits, which will lead to conflict if the two parties aren’t on the same page.

“Really know your investor and do your own due diligence,” she says.

Finally, when approaching investors, Novitske says the best way to start a dialogue is to go direct to the decision maker – and preferably by introduction from a person they respect.  This might be a previous investee, or a fellow investor they work with.

This type of approach can help drum up interest along the grapevine, and move things along towards that goal of those multiple term sheets.

 

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Inspired and excited by the African tech entrepreneurial scene, Gabriella spends her time travelling around the continent to report on the most innovative tech startups, the most active investors, and the latest trends emerging in the ecosystem.

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