Capital Access Planning

The process of raising capital is straightforward, but not easy. Whether you work with an investment firm or raise funds from friends and family, successfully raising capital requires a high degree of focus and a significant commitment of time from company founders and key management.

The capital process can be described in three steps:

  1. Develop a business plan with well-thought out assumptions about how the business will grow and develop. Include financial projections based on the amounts and uses of funds required to achieve the milestones at each stage of development.
  2. Identify specific sources of capital, with consideration of the company’s geography, industry sector, and stage of development. Build relationships with targeted investors that are a good fit for your business.
  3. Define business success for the company, including the time horizon is to achieve such success and how the rewards of that success will be realized, including identifying the potential acquirers of the business. What would the company need to look like to attract potential acquirers? Why would acquirers buy the company?

Following the best practices listed here can increase the odds of success, but there are no shortcuts or sure things.

1. Build a concise and defensible business plan and supporting financial projections that show how much capital the company needs and how that capital will be used.

The company’s business plan is the foundation of every viable capital access plan. Based on the assumptions of the plan, determine the cash required month by month, quarter by quarter to achieve meaningful commercial milestones that move the startup from concept stage, to seed stage, to cash-flow breakeven, to growth? Milestones typically relate to market validation, product development, talent acquisition, first customers, and growing evidence of product-market fit.

In every startup, effective cash planning and management are critical. What are the company’s track record and plans for bootstrapping —using personal resources and cash flow generated from revenue to fund the business instead of raising capital? What is the outlook for early customer revenue? Will early adopters help fund development or prepaying for the product? How much cumulative capital will the business need before it is cash-flow positive? What are the events that could accelerate or delay revenue?

A company’s first-round of funding probably won’t be its last. It’s not improbable that a startup will need three to four or more rounds of financing over the life of the company.

Investors craft their rationale for investing in a company around a specific investment thesis: Why will this team with this product win in this market? Help them answer this question with as much supporting details and justification as possible.

Investors focus on the quality of the jockey (the team), the horse (the product/technology), and the race (the market opportunity). While some investors emphasize team over product or vice versa, prospective investors will heavily scrutinize the overall quality of the investment opportunity in deciding which companies they will ultimately fund.

Once investors decide to engage in formal due diligence on an investment opportunity, they will analyze financial projections and look at a multitude of scenarios to further assess the quality of the investment opportunity and to develop a perspective on the targeted size of the round, ideas to manage risks, and the likelihood and magnitude of additional capital needed for the business to reach scale and cash-flow breakeven.

2. Identify the sources of capital and develop relationships with investors.

As described above, many factors contribute to an investor’s interest in and ultimately the decision to invest in a company.

It is key to identify investors that focus on the sector, stage, and geography of your business. For example, some investors will not invest in pre-revenue companies. So, if you’re pre-revenue, focus on investors that will invest in pre-revenue companies. Many angel investors look for companies that are no more than three-hours driving distance. Keep in mind that investors have a target market, too, based on company stage, size of the round, sector or industry, and company geography. Investors expect returns and control.

The following are the typical sources of capital available to startup companies by stage. Please note, that while the round sizes by stage (Concept, Seed, Early, and Growth) referenced here are considered typical, the size of rounds could be much higher at any given stage, depending on the deal. A detailed review of these sources can be found in our article, Sources of Capital for High-Growth Companies.

Concept Stage: ($25K-$250K)

Personal Assets – Bootstrapping

Accredited* Investors (Friends & Family, Angel Investors)

Strategic Partners/Investors

State and Federal Grant Programs (e.g., SBIR/STTR, Ohio Third Frontier)

Economic Development Funds

Concept Stage Investment Funds

Seed Stage: ($250K-$2MM)

In addition to the above:

Seed Stage Angel Funds

Seed Stage Venture Capital Funds

Seed Stage Corporate Venture Capital Funds

Early and Growth Stage: ($2MM+)

In addition to the above:

Venture Capital Funds


Venture lenders (e.g., Silicon Valley Bank, Square 1 Bank)

Alternative lenders (e.g., SaaS Capital)

Understand if a prospective early investor will be able to make follow-on investments in the company should additional rounds of financing be necessary.

Institutional investors (e.g., seed and venture capital funds) typically reserve one to two times the amount they invest (sometimes referred to as dry powder) in an initial investment for future investments, should the company make progress. However, some investors do not anticipate making follow-on investments after their first investment. It is critically important to understand the potential for further investment from prospective new investors before the company commits equity to an investor in an early round.

Corporate venture capital funds are increasingly important funders of startup technology companies. Many corporations have long-standing histories of making early stage investments, and corporate venture capital is becoming the norm among large corporations.

According to Forbes, from 2011 to 2016, the number of global active corporate investors tripled to 965. Today, 75 of the Fortune 100 are active in corporate venturing, and 41 have a dedicated corporate venture capital team. They represent a growing source of capital as well, participating in nearly one-third of all U.S. venture deals.

Accordingly, researching and seeking to build relationships with potential corporate venture capital investors might pave the way to access funding from this growing source of early stage capital.

Once you have determined the potential investors who are the best fit for your business, research and seek introductions to investment firms in your region and industry that align with the firm’s stage of development, product/industry focus, and target industries and markets. It is prudent to begin relationship building with investors at least a year to 18 months in advance of when the company expects to close a financing.

While a warm introduction from another entrepreneur, investor, professional services firm, or industry reference is ideal, proactive networking and even cold calls can open doors to possible investor introductions. A compelling and concise elevator pitch is a must.

ACTION STEP: Investment thesis to match each of those investor’s rationale for wanting to invest. Which factors make the best case for them to invest in your company? What are their typical terms? Identify the weaknesses and risks that an investor would see in your business plan and create a plan to address and mitigate them.

Each step in the investment process is important to building a relationship and establishing credibility and professionalism. From the initial screening process, through due diligence and term-setting, every experience provides more visibility into whether the entrepreneur and investor can work effectively with each other.

Institutional investors almost always issue the term sheet which sets the terms under which they will invest, and the valuation at which they will invest. The entrepreneur can negotiate, but investors typically have a preferred way they invest, and this informs the proposed terms.

Once the company attracts investor interest, passes that investor’s initial screening process, and enters due diligence, expect that process and closing to take approximately six months or longer, although it can occasionally be shorter. Asking thoughtful questions about an investor’s process and timeline can help inform realistic expectations for your business and your team.

ACTION STEP: Check out an investor’s references. They will be checking out yours. It can be very beneficial to talk to founders and CEOs of other companies in your target investor’s portfolio. In addition to the potential for a warm introduction, you can gain valuable feedback about what it is like to work with that investor.

Changes in the company’s governance are often required when the company accepts outside investment. Outside investment will also likely require creating a board of directors. Typically, investors will require board seats as part of the terms of their investment.

Communicating to and managing the board becomes one of the CEO’s most important responsibilities. Getting to know and establishing a good working relationship with the investor that would join the board of directors is an important part of the due diligence and negotiating process.

ACTION STEP: Build a repeatable financial and key metric reporting process that is efficient and informative. Report actual operating and financial performance versus the plan. Update and refine the business’s capital access plan and communicate the expected timing and dynamics for the next capital raise. Demonstrate progress toward milestones, management of the company’s burn rate, and always know the outlook for the company’s expected cash run dry rate.

ACTION STEP: Prepare a brief (~10-slide) introductory and non-confidential investor presentation ready to send to prospective investors upon request. Include financial statements, and financial projections.

3. Envision what success looks like; create an exit strategy.

Develop multiple exit scenarios. Why will the business, when it develops according to plan, be attractive to acquirers? Will acquirers be most interested in your customer base, recurring revenue base, talented team, best-in-class technology, or product or application portfolio? What can you learn from the exits of similar companies that have achieved early traction and successfully been sold to acquirers?

Even if your intention is to continue to operate the company once it scales, investors will want their money (and a sizable return) back.

IPOs are possible, but very rare. According to FactSet, on an annual basis, there were only 106 companies that went public on U.S. exchanges in 2016, a 35.4 percent downtick from 2015 (164 IPOs). The number of initial public offerings in 2016 marked the lowest annual count since 2009, when the number was 64.

Buying out early investors is possible, but rarely delivers the strong return early stage investors are targeting.

Accordingly, acquisitions are the most likely exit avenue for successful venture-backed start-ups. Make sure that your exit scenario planning includes assessments of companies that might be interested in acquiring your business to complement their existing products, to enter new markets, or acquire a talented team.


With the appropriate discipline and the right tools, any entrepreneur can build a capital access plan that will serve the business from concept to seed stage to early and growth stages and beyond.

*An accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience set for by Securities and Exchange Commission (SEC) under Regulation D. Accredited investors include natural individuals, banks, insurance companies, brokers and trusts.