The Best Tips and Tools to Nab a Second Round of Investments

By Sara B. Frederick on May 16th, 2014 / Comments

You worked through your first round of investments. You are done with proof of concept, spoke with venture capitalists and got a team in place, and you’ve launched your product to a few paying customers. Now you need more capital so you can grow that team, expand your product line and increase your marketing efforts. What do you have to do this time that’s different from the first time you sought funding? We have the tips and tools to help:

Stay Focused

It is time- and energy-consuming to raise funds successfully, and most small companies cannot afford to slow their development and marketing at this stage. Consider splitting management responsibilities, so one person deals with investors (especially good if this someone possesses strong math skills) while the others continue to focus on the core of the business.

Put in a little more effort and get just a few more sales. This will carry you over the threshold of covering your bare expenses. It shows that you can be helped, but that you don’t need help, which is an attractive quality to investors.

Update Your Business Plan

Aside from the product and your team, the most important thing investors look for is how and when a return will be generated on their money. Update your business plan with details on cash flow, ROI projections and an understanding of your market. Three resources we like:

  • InsightSquared has software that analyzes your current sales and accurately forecasts future ones, enabling you to paint a detailed picture of your current and future financial situation for potential investors
  • Entrepreneur features a comprehensive business plan guide, including information on how to update it
  • The Small Business Association offer tips on preparing financial statements, including balance sheets and income statements

Understand the VC’s Point of View

Take some time to understand not just your company’s growth rates, but the valuations of the shares investors receive. If your company goes through several rounds of investments, the investor’s shares will be diluted, and their return will not be the same as the increase in the company’s valuation over time. The Venture Capital Investment Competition at the University of North Carolina provides a tutorial on what investors are looking for, and educating yourself will help you have a more productive conversation.

Include an Exit Strategy

In addition to valuations, investors will want to know what you are thinking about your exit strategy. Exit strategies can include an IPO, a secondary buyout or a trade sale. This case study of Parasun Technologies shows that a company’s exit strategy can be as simple as setting a time frame and a price for a sale, as they did when they decided to sell the company for more than $10 million by late 2006 or early 2007. Ultimately, they sold in May 2007 for about $14.8 million.

About the Author

Sara B. Frederick

Sara spent years living and working in Tokyo, Hong Kong and New York in the financial services industries, until she left it all behind and moved to Arizona with her husband. Most recently, Sara has kicked off her latest incarnation as a writer and trained life coach.