How do startups approach investor buy-sides and sell-sides?

How do startups approach investor buy-sides and sell-sides?
Dr. Peter Luk

Dr. Peter Luk

Executive Vice Chairman at Hong Kong International Family Office Association

First, startups should understand the investor buyer when evaluating and deciding whether to invest in the startup. This includes activities such as:

  • Research potential investment opportunities
  • Review the startup’s promotional materials and financial information
  • Conduct due diligence on new startups
  • Negotiate investment terms and deal structure

Whereas the investor sell-side refers to the actions and considerations of a new startup founder when pitching the company to potential investors and negotiating an investment deal. This includes activities such as:

  • Prepare detailed financial models and investor promotional materials
  • Contact investors and participate in promotional events
  • Negotiate valuation, equity and other investment terms
  • Maintain continuous communication and reporting with investors

How startups approach investor buy-sides:

  • Startups should create a compelling investor pitch that highlights the company’s vision, traction, team, market opportunity and financial projections.
  • Startups should always reach out to investors through warm introductions from their networks. They can also attend investor events and conferences to connect directly.
  • The goal is to find the right investor partners who can provide not only capital but also strategic guidance, industry connections and additional added value.

How startups approach investor sell-sides:

  • When a new startup seeks to raise capital, they are essentially “selling” shares of the company to investors.
  • This involves preparing detailed financial models, market analysis and other documents to demonstrate the company’s performance and future potential; marketing yourself to a range of potential investors and highlighting unique investment opportunities.
  • New startups need to negotiate final investment deal terms, liquidation preferences, board seats, etc., and are a key part of the sell-side process; the goal is to raise the necessary capital while maintaining as much control and upside potential as possible for the founding team.

Here are some key hints for a startup to prepare for the sell-side when working with VC investors:

(A) Build a Comprehensive Data Room:

  • Gather and organize all relevant financial documents, legal contracts, intellectual property records, and other critical business information in a secure online data room.
  • Ensure the data room is well-structured and easily navigable for potential investors.

(B) Prepare Detailed Financial Projections and Company Valuation:

  • Develop thorough financial models that demonstrate the startup’s growth trajectory, revenue potential, and path to profitability.
  • Ensure the projections and valuation are realistic, well-supported, and consistently articulated across all investor materials.

(C) Refine the Business Plan and Pitch Deck:

  • Craft a concise, compelling business plan that clearly articulates the startup’s value proposition, market opportunity, competitive advantages, and growth strategy.
  • Design your pitch deck to effectively engage with potential investors, it is advised to avoid presenting depth technology terms and research contents.

(D) Formulate the Co-Founding and Management Team:

  • Ensure the startup has a strong, experienced management team with a proven track record of execution.
  • Consider bringing executives or advisors to fill any gaps in expertise or experience in the necessary aspects of functions such as CEO, COO/CFO, CTO and CSO, to cater for technology, sales, marketing and operations.

(E) Develop Investor Relationship Strategy with Trusted Advisor:

  • Engage experienced professionals to provide guidance and support throughout the selling process.
  • Leverage their expertise to navigate the complexities of venture capital transactions and negotiations.

By thoroughly preparing for the sell-side, startups can increase their chances of securing favorable investment terms, accelerating growth, and achieving a successful exit.

To sum up, the buyer is from the perspective of an investor, while the seller is from the perspective of a startup. They are complementary but different aspects of the new venture financing process.  Buy-side and sell-side processes require different skills and approaches, but both are critical for new startups looking for the right investors and funding to fuel their growth.

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