In considering potential investments, US VC investors (and, indeed, professional VCs anywhere) are very much focused on the quality and professionalism of the target company’s management team. For many VC investors, this is at least as important as the quality of target’s business concept.
You can best demonstrate professionalism by ensuring that your company presents well in investor due diligence. You should get ready for that now, and not wait until the investors are knocking at your door (or you are knocking at theirs). Here are some key “to do’s”:
1. Have the right team in place
a. Build out your team to cover all of the bases
ii. Chief executive officer
iii. Chief operating officer
iv. Chief technology officer
v. Finance director
vi. Business development/head of sales and marketing
b. Some of these roles may initially be part-time or outsourced (e.g., the finance director role) but you need to show that you have in place the team that you need to take the business to the next phase
c. A mix of experience is better. If the founders are all working on their first company, consider how to add veteran experience. An outsourced finance director may be one way to do so. Your angel investors may also a key resource in terms of experience – increasingly, emerging companies are selecting angels not just for their money but also for the skills and experience that they can bring to the table.
2. Make sure that your company records are in order
a. appropriate articles of association in place, corporate minutes properly maintained, and filings timely made
b. shareholder agreements in place, including, for example, “reverse vesting” agreements to recover shares from founders who leave prematurely
c. UK EMI plans properly approved and implemented, including support for valuations as required
d. UK SEIS/EIS requirements, as applicable, complied with
e. shares or options issued to those who are entitled to them
3. Make sure that your company owns all of its intellectual property
a. all IP related to your business assigned to your company by all founders, employees and contractors
b. trademarks obtained for your corporate name and key brands in the jurisdictions that are critical to your business (e.g., EU, US)
c. an assessment made as to whether patents can/should be obtained
d. appropriate non-disclosure agreements in place with employees/contractors and actual and potential contractual counterparties that protect your IP
4. Address your company’s contractual terms and compliance
a. develop terms and conditions that are appropriate to your business
b. have appropriate and consistent responses on key issues where you are forced to contract on the standard forms of counterparties
c. maintain copies of all contracts
d. Have systems in place to ensure compliance with your contractual obligations
5. Build a persuasive business plan and implement appropriate financial controls
a. Develop a business plan with milestones that shows that you know where you are going, at least in the near to medium term. You should try your best to time your solicitation of investment to coincide with the achievement of key milestones.
b. Keep in mind that VCs are looking for at least a 10x return on their investments to compensate for those that don’t succeed. You need to show an addressable market that will potentially deliver that value
c. Develop a financial plan that shows that understand your cash needs and runway
d. Implement appropriate financial controls to control your cash burn
And, as we will discuss in detail in an upcoming blog, learn how best to pitch your business, both to VCs and commercial counterparties. As to the former, your task in seeking investment will, needless to say, be substantially easier if you are able to show transaction and external validation
These steps by themselves may not be sufficient to attract US VC investment, but you will find it difficult to secure that investment without ticking these boxes.
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Want to learn more about how best to pursue US expansion or US investment? Feel free to get in touch with Daniel Glazer or Robert Mollen.
Article produced in partnership with Daniel Glazer and Robert Mollen at Fried Frank Technology.