Private Equity: Episode 16 – The First Step to Funding a Startup

A founding team of a startup seeking investors will need to embark on a specific journey. The first thing is to clearly identify the stage of development the project is in, and thus determine the appropriate type of financing and the relevant investors (see Episode 12).

Next, certain documents need to be prepared, two of which are central: the pitch deck and the business plan. These two items will be the first things reviewed by business angels or investment funds. It is therefore crucial to give them special attention, as their review usually takes only a few minutes, which can make or break the interest of the investors.

The pitch deck should provide a comprehensive overview, covering at least the team, market, the problem being addressed, the proposed solution, competition, and developed technology, among other things. It should describe all the arguments supporting the project's strength. However, it must be limited to around fifteen pages, with both form and content being equally important.

The business plan demonstrates how the business model works: how the startup generates revenue and its cost structure. It must be built on clear and justifiable assumptions.

If the investors' attention is caught, the team usually secures an initial meeting to introduce themselves more concretely. The goal is to make a strong impression and win them over!

The subsequent steps depend on the maturity stage of the startup. For younger startups, investors can make a decision fairly quickly, as there are generally few elements to review and the project is still in its early stages.

For more advanced startups, investors carry out Due Diligences to thoroughly analyze the business. Numerous players can intervene at this stage (investment banks, financial consulting firms, technical advisors…) to understand the commercial and financial situation, the technical solution, and so on.

If all indicators are green, the investors issue a Letter of Intent (LoI), which includes a valuation proposal, capital entry terms, and governance participation. This serves as the basis for negotiations, ultimately resulting in the final investment agreement's terms.

This first step can vary significantly in terms of time and format, depending on the stage of the startup, the network the management teams have access to, and many other factors.