A practical guide to fundraising

Given its challenges, fundraising can be long, within the range of 6 months to 1 year.

The Blackroom Team
The Blackroom Team

Given its challenges, fundraising can be long, within the range of 6 months to 1 year. Before committing to it, it is important to be aware of the different stages involved. The good news is that there are plenty of different ways to raise funds for your project. In this post we'll discuss some practical steps you can take to ensure that your fundraising efforts are successful.

1. Preparation

Convincing investors to finance your project cannot be improvised. Before contacting them, it is therefore important to prepare. Anticipation is key. 

  • Prepare the project — get it ready for fundraising by developing a plan and assembling key documents
  • Prepare the team — assign roles, create an action plan and develop a communication strategy (this includes direct mail campaigns)
  • Identify the experts who will accompany you. Business leaders who have experienced this before are often good advice. And they have the advantage of being disinterested in your fundraising,
  • Prepare the documents — make sure you have all necessary legal documents such as contracts and memoranda of understanding (MOUs) drafted before you start fundraising; also check that you have proper documentation regarding intellectual property rights if applicable
  • Executive summary: summary of the file, which serves to present the project and allows investors to assess the feasibility, credibility, and potential of the project,
  • Pitch (aka a presentation slideshow): you must have prepared it and tested it orally with as many “competent” people as possible,
  • Business plan: detailed presentation of the project and tables of financial statements
  • Additional documents for "due diligence", stored in an efficient data room which will help you look more professional and will help you gain time for further stages.
  • Prepare the budget — prepare budgets which show how much money will be needed from each investor or grantor in order to complete your project; this should include any costs related directly or indirectly but still incurred as part of carrying out what was promised when seeking funding support (e.g., administration costs)

2. Targeting investors and the approach phase

Once you’ve defined the project and its scope, you should start thinking about your target investors. A good way to do this is to ask yourself who would be interested in getting involved with your project. If it’s an arts-related venture, for example, what wealthy people might want a piece of the action? You may have heard about some well-known patrons whose names come up again and again when discussing art funding (the Tate Modern wouldn’t exist without Lord Sainsbury).

Your next task is to define exactly what sort of investor they would be. This will help ensure that all potential investors are approached at the right time and place, meaning that their interest levels will remain high throughout the process. The main things we need from these people are money and expertise - but sometimes it's also useful to get them on board as political allies. 

3. Project analysis and due diligence

You've done your research, and you're ready to make the plunge into your first ever fundraising campaign. This can be a daunting process, but don't let that stop you—your organization needs the money, and it's high time someone stepped up and took charge. But where do you begin? And how do you know whether or not this is right for your organization? What steps should be taken before launching into a fundraising project? The answers are here! We'll take a look at how to conduct project analysis, evaluate risks, conduct due diligence on potential donors or partners, determine if there are any inherent conflicts (or "red flags"), set goals for success and measure them throughout all stages of the process.

4. The letter of intent

A letter of intent (LOI) is a non-binding document that outlines the preliminary terms of an agreement between two or more parties involved in a project. It's typically used as a way to formalize negotiations while also setting out the scope of the project.

Without getting too technical, an LOI serves as a summary of what's been agreed upon so far and what needs to happen next—usually in order for there to be more detailed planning on both sides.

5. Financial negotiations

If you’re not a trained negotiator, here are some tips for your next round of financial negotiations.

  • Know what you're worth. Do your homework on what similar companies have raised and the terms they’ve negotiated to get there.
  • Don't be afraid to walk away from a bad deal. If an investor wants a controlling stake at too low of a valuation—or doesn't want their investment to look like they've lost money later—they may not be negotiating in good faith, so don't feel bad about walking away from this type of dealmaker!
  • Ask yourself: "If someone else offered me X amount for my company today, would I take it?" If yes, then that's probably not much lower than where you should settle.

6. Legal negotiations

There are many things to consider when going into fundraising, but the most important is that you have a good legal team. It's also important to have a good lawyer and contract.

You need to have a good business plan and agreement. A lot of people only focus on the fundraising aspect, but they don't think about the legal side of things at all until it comes time to sign their first big check from investors or grantors.

7. Closing

The closing phase is the last step in fundraising. It’s where teams of lawyers and accountants look over all the legal paperwork, financial statements, and tax filings to make sure that everything is in order. In this phase, investors will most ofter perform “due diligence” on your business: they may ask for more information about how it works or how much money has been raised so far. If you already have a data room ready at this stage, you will be much more efficient and will show professionalism.

This process varies from country to country — some countries have laws that specify exactly how much money an investor needs to invest before they are allowed to participate in a company's capital raise (called "minimum investments," or MI).

The entrepreneur should make sure that their team is prepared for these tests before closing a round of funding as well as during it—if something falls through during due diligence then it could jeopardize everything else going forward!

Last but not least, fundraising is a time consuming process that requires a lot of time and focus, most often handled by one of the founders and the CFO. Make sure you have the team, processes and tools ready so that the business can keep on running smoothly while the fundraising process is ongoing.

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