Decoding The Role Of Investment Bankers In A Startup’s Fundraising Journey

Investment bankers have always played a role in fundraising or mergers and acquisitions (M&A). Whether for corporations in the early 1990s, when India was on the verge of liberalisation, or for startups today. In 2021, startups raised $42 Bn, indicating a boom in the fundraising market. Today, an entity seeking to raise funds has a plethora of options. 

It is critical for a company raising funds to identify the investor-investee fit. 

When raising funds, the first question to ask is how much money you want to raise, and then you must decide which investment banker to work with.

With technology and news moving at the speed of sound, a good entity will always have investment bankers pursuing a mandate to raise funds. 

However, if you are not that marquee entity, you will need to find a genuine Ibanker who will accept your fundraising mandate. A smooth fundraising process can be achieved with an appropriate investment banker who understands the company’s stage of development and the potential investor’s investment thesis. 

An investment banker can help you at every stage of the fundraising process in the following ways: 

A Compelling Pitch Is The First Step

When an investment banker accepts a mandate, the first consideration is whether to pitch to a venture capitalist, a bank, a strategic angel, or an institution. In the early stages of the fundraising process, a compelling story is required.

An engaging story can do wonders for a startup. Every fundraise benefits from an effective pitch that convinces an investor of one’s vision and motivates him to provide funding. 

Preparing The Investment Memorandum Is Next 

Along with developing the narrative, the investment banker works on developing the pitch collaterals. An investment banker understands investors’ expectations and thought processes, and can thus assist in the preparation of a sound document tailored to the investor’s expectations. 

The collaterals can include an Investment Memorandum (IM), a teaser deck, a short video introducing the company, and a detailed deck outlining the company’s vision, mission, opportunity landscape, performance matrix, projections, fundraising and deployment plans, and other important details that will pique investor interest. 

Collateral preparation can take up to two months. The time period can also be reduced, but with data collection and multiple iterations, 4-8 weeks can be set aside for the entire exercise. 

This is only the beginning. Once the collaterals are in place, it is time to approach potential investors. This is the most difficult part.

Selecting The Right Investor For Outreach 

For lack of a better term, an investment banker acts as a matchmaker. As a matchmaker, they must understand the preferences, appetites, and modes of operation of all parties involved. 

Choosing the right set of investors for the outreach is critical because it increases the likelihood of engaging in a meaningful conversation while also allowing for time and effort efficiency. What distinguishes a good investment banker from the rest is the ability to make the best-fit connections. 

Landing On Friendly Terms And Conditions Is The Key 

Finding mutually acceptable terms can take time and often results in disconnects. Due diligence, valuation, dilution, and legal rights are among the factors. 

Individual parties try to achieve the best possible outcome for themselves. An investment banker’s role is to secure a term that is acceptable to both parties. The classic ‘win-win situation’

Timely Closure Of The Process Is Of Essence

Fundraising can be a time-consuming and exhausting process. Finding the right investor and obtaining the term sheet can take anywhere from 4 to 8 months of rigorous connections, pitching, data sharing, and discussions. This is followed by due diligence, transaction document drafting, obtaining relevant approvals, and meeting compliances.

An investment banker can work as an extra team member to help streamline and accelerate the fundraising process. The investment banker can deploy resources to manage the fundraising process. Investment bankers typically have legal and regulatory expertise to assist with compliance and document drafting. As a result, the amount of time spent on the process by the founders can be significantly reduced, giving them more time to work on other important matters with the investors.

Approach

Investment bankers can help founders in a variety of ways because of their relevant skills. They provide a diverse portfolio of investors and services to effectively raise funds. Fundraising necessitates extensive knowledge and connections. 

To ease the fundraising process, consider onboarding an investment banker based on their track record and feedback from the ecosystem.