What Does it Mean to be Investor Ready?
It feels like the term “investor ready” is all the rage amongst incubators, angel groups and ecosystem supporters these days. Search for “investor ready” or “investor readiness workshop” and you’ll get hundreds upon hundreds of results.
I have to be honest: I’m highly skeptical of the vast majority of these programs. For starters, I’ve been asked to speak at countless “investor readiness” workshops over the years — which I’ve always found funny. If you’re running a program that teaches founders what they need to do to be ready to speak to investors, why do you need me there? Moreover, many of these programs are run by people who have never raised any capital, nor invested any of their own. How on earth can you proclaim to be an expert in navigating a two-sided marketplace when you’ve never participated on either side? (Wait…I think I have my answer… 🤣)
But seriously…what does “investor ready” actually mean?
Let’s start with a basic fact: it is possible for almost any company to attract capital at any stage of its journey.
Sound crazy?
I’m not saying that any company can raise capital at whatever terms the founders want, but simply that in the vast majority of cases, there is a price at which some number of investors greater than one would be willing to invest.
You might not be willing to give me $10,000,000 for 10% of my company, but you might be willing to give me $10 for 100% of it.
My point is that “investor readiness” isn’t about how far along you are in your journey.
It’s not about whether you’ve achieved X revenue or Y pilots or Z users. Those things impact the likelihood that you will be able to attract investors at the terms you’re looking for, but not whether prepared to talk to investors.
Investor readiness is a measure of your preparedness to credibly engage with a potential investor. Which boils down to three things:
Can you accurately describe your business and its potential to someone who hasn’t met you before?
Do you have the materials necessary for a potential investor to perform diligence on the investment opportunity?
Is the company structured in a way that it can receive external investment?
Let’s dig into each one.
1. The Pitch
By far the most important part of investor readiness is the pitch. Can you accurately describe your business and its potential to someone that you’ve never met before?
I won’t go into the details of what makes a good pitch, but at its most basic, you should be able to cover the following points concisely and confidently:
What problem are you solving?
How big is the opportunity? (Why does it matter?)
What is your team best positioned to capture the opportunity?
What have you achieved so far? (What evidence do you have in support of your market hypothesis?)
You should have both a written form of The Pitch — aka your pitch deck — and a verbal form (known as your “elevator pitch”). Make sure that you practice pitching and fielding Q&A from a variety of people prior to speaking with investors. Though don’t rely too heavily on founder friends.
2. The Data Room
If an investor shows genuine interest after The Pitch, do you have all of the necessary materials ready and available for them to perform diligence?
A collection of diligence materials is organized in a “Data Room” (which is just a fancy name for a Dropbox folder or other online repository). A basic data room includes the following materials:
Company documents (incorporation certificates and similar documents)
Financials (standard financial reports, bank account balance, prior investment details, etc.)
Proposed Budget
Product Materials (architecture/design documents, patents, IP agreements, etc.)
Sales Materials (contracts, partnerships, pipeline, etc.)
It’s common for investors to ask for additional materials based on their personal questions, but you should have the basics ready to go.
3. The Company Structure
This last point is usually not an issue, but if you don’t pay attention it can kill a potential investment.
Not all companies are structured in a way as to be able to receive external investment. I won’t go into the details here (consult your friendly neighborhood startup lawyer), but making sure that you are incorporated in the correct form and in the correct jurisdiction is essential.
You also need to make sure that your cap table isn’t “upside down”. Potential investors may balk if a significant amount of your equity is owned by a cofounder who’s no longer part of the company or an angel investor who only put in a tiny amount of capital. They want to know that the team they’re investing in is highly motivated (which means that they own the majority of the company).
Being investor ready isn’t about whether or not your company is in a good position to raise capital. It’s simply about whether or not you’re prepared to have credible conversations with potential investors.
If you maintain investor readiness, you can periodically “test the waters” with investors to get a sense of whether now is a good time to raise (or if there are specific benchmarks you should achieve first). I’m a big proponent of creating a “dotted line” with potential investors, rather than choosing when to fundraise based on overly-general rules of thumb or milestones proposed by advisor and friends. Being investor ready allows you to pounce when the timing is right, which can lead to incredible results.
