Before pitching a startup to VC firms, founders should prepare a portfolio of documents which may be solicited during the fundraising process. This is part of being investment ready. Inability to present these documents as and when required by VC firms may give them the impression that a founder is not ready to handle investments.
Not all VC firms will ask for the same documents. Their requirements may vary with their location, industry and stage of funding. Some documents are generally required by all VC firms, like business plans, pitch decks and management bios.
Mentioned below is a non-exhaustive list of documents which may be sought by VC firms when assessing startups for funding.
Business Plan
A business plan defines a company’s goals and how it will achieve those goals. It should include a description of the company and its business opportunity (the problem the company is solving with its product/service), description of the company’s product/service, market analysis (which includes analysis of target market, trends and competitors), business model, marketing plan, logistics and operation plan, information on management team, financial projections and statements, and implementation timeline. It should also specify the amount of funding a founder is seeking from a VC firm.
Early stage startups may not be able to provide financial statements. Usually VCs want to see three types of financial statements- income statements, cash flow statements and balance sheet.
Pitch deck
A pitch deck is a slide presentation of a company’s business plan. The structure of a pitch deck varies according to its purpose. For example, a founder may email his/her pitch deck to a VC firm to try to land a meeting, in which case the deck should be self-explanatory. On the other hand, a founder may get the opportunity of presenting in person to investors, in which case the deck should be more visual than textual.
A pitch deck should inform investors about the problem a startup is trying to solve, the proposed solution (product/service), market size, business model, competition and competitive advantage, marketing plan, traction, financial information (like expenses , profits and projections/milestones) and the management team.
MVP or product demonstration
An MVP or product demonstration helps investors to understand a startup’s product/service better. A minimum viable product (MVP) is a basic version of a product which can be used by potential customers to provide feedback. The feedback is used to modify the product and produce the final version. An MVP does not have all the features of the actual product, rather it has the bare minimum features needed to make it usable.
For example, the founders of Airbnb initially developed a basic website to rent out their own apartment. They did this to test their business idea before investing money into it and potentially failing. This website was their MVP. They were able to find paying guests with their website, which propelled them to develop and launch it full scale.
A product demonstration is a presentation of how a product/service works. For example, a mobile financial service (MFS) provider may demonstrate how to transfer money using its app when pitching it to investors.
Investment proof
Startups which have raised investments in the past need to show proof of those when fundraising in subsequent rounds, to inform VC firms about other investors who are onboard.
Cap Table
A capitalization table, or cap table, is a chart/spreadsheet showing the distribution of a company’s ownership among shareholders. It enlists the various types of securities a company has (e.g., shares, SAFEs, warrants, convertible notes, etc.), as well as the quantity and value of each type of security held by investors, and their portion of ownership of the company. As a company gets bigger, its cap table becomes more intricate.
Customer testimonials
For startups which have launched an MPV or product/service, customer testimonials are valuable in persuading investors about the potential of the business. These testimonials should attest to the usefulness of the product/service and the value it generates. Customer testimonials may be included in a startup’s website or even in their pitch deck.
Management team bios
Management team bios showcase the relevant experience and qualification of founders, as well as their previous achievements. Founders’ bios should be updated regularly, to give investors the best possible impression.
Proof of identity for KYC verification
Know your customer (KYC) is a process by which businesses verify customers’ identities. VC firms may ask startup founders to fill up KYC forms to gather their personal details. VC firms may also solicit proof of identity (like national ID cards) and proof of residential address (like utility bill, letter from a local authority or bank statement) from startup founders to run background checks. This is part of their due diligence conducted before making investment decisions.
Valuation report
Valuation is the method of determining the present value of a company. Valuation reports are prepared by third party business consulting firms. This helps investors to calculate the value of the equity they may invest in, in addition to predicting their profits from potential trade sales.
Certificates, Licenses & Permits
All companies need to obtain certain documents before they can start operating legally. For example, a Certificate of Incorporation proves the legal existence of a company. Generally, this is one of the first documents a company will attain as it is needed for banking, contracting, hiring employees and raising investments.
In Bangladesh, a company also needs a trade license, TIN (Tax Identification Number) Certificate, BIN (Business Identification Number) Certificate, and VAT Registration Certificate among other documents. Depending on the nature of the business, companies may need additional permits like Environment Clearance Certificate, Fire License, etc.
Trademark / Intellectual property rights
Startups which have trademarks and intellectual property rights are lucrative to VC firms for investment. Registered trademarks protect the value of a brand, and may increase it over time. Having intellectual property rights enables patent licensing, i.e., licensing a company’s brand or technology to other companies to generate revenue.
Bank loan documents
Before investing in a startup, VC firms want to know if the startup has taken any bank loan to assess its ability to service the loan in addition to covering its other expenses. The VC firm may also take note of all the assets of the startup, including equipment and property, which may be used as collateral in case the company is unable to repay its loan.
Company’s Income Tax filings
VC firms want to check if the startup they are considering for investment has fulfilled its tax liabilities as per the law of the land.
Disclosures
Startup founders should disclose important issues to potential investors which may affect investment decisions. For example, a company may be facing a lawsuit, or it may have filed for bankruptcy in the past, or it may hold a part of its earnings in crypto-currency. Transparency is key to building lasting relationships with investors.
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