Raising Capital: Due Diligence, Managing Finances, and Putting the Numbers Together
Updated: May 20, 2022
The Journey of Jaime McNally (Equity Crowdfunding Series)
As mission-driven women entrepreneurs, we know our companies inside and out. From documentation to operations, we make sure we're hands-on in all aspects of the business. But if you’re looking to raise capital and grow, there are many factors to consider: How much is your business worth? Can you really do everything alone? Do you have all the data you need?
In this episode, FrontFundr's Jaime McNally shares the processes FrontFundr's Venture team executes to help companies raise capital. She also discusses the role and importance of valuing a business in equity crowdfunding. We also touch on the FrontFundr best practices in managing finances and data and the process of raising capital through convertible debt.
Tune in to the episode to learn the best practices for achieving growth from one of FrontFrundr's finest!
3 reasons why you should listen to the full episode:
Learn the role of valuing a business in raising capital.
Find out some of the FrontFundr best practices for business growth.
Identify the best deal structure and common struggles ventures experience when raising capital and how to deal with them.
Visit Christina Sjahli’s website for more insights on equity crowdfunding on the Her CEO Journey podcast series.
Check out another episode from the Equity Crowdfunding series Creating Successful Marketing Campaign to Raise Capital - The Journey of Trieste Reading
Turn Your Community Into Investors With Equity Crowdfunding - The Journey of Kara Sam
Download this Action Guide to help you do your due diligence, manage your finances, and put the numbers together.
Connect with Jaime: LinkedIn
[02:55] Explaining Key Terminologies
Convertible debt is a debt financing form where there is an agreement that the debt will change into equity ownership.
Convertible debt is one of the ways to raise capital quickly for early-stage startups.
Business valuation refers to how much your business is worth. Valuing a business is the responsibility of the individual business.
“It is more important for you to understand why knowing how much your business is worth matters. For one, it matters because the value of your business determines how much ownership or equity you should be offering your investors in the round of equity financing.”
[04:15] Why Knowing Your Business’s Worth Is Important
Valuing a business determines how much ownership or equity you should offer to investors during an equity financing.
Valuing a business too high could lead to pricing the company out of future funding. Meanwhile, valuing a business too low could lead to financial loss.
Business valuation is also crucial for exiting the business.
[05:26] Three Processes to Implement to Determine the Value of Your Business
Have data collection systems to gather everything from financial and marketing to production and operational data.
Review data regularly to understand trends and patterns.
Create a long-term forecast (3 to 5 years) and update it as the business grows.
[07:26] How FrontFundr Works
FrontFundr provides investment opportunities for any Canadian. Technology eases the process of raising capital for both entrepreneurs and investors in FrontFundr. Jaime leads the Ventures team of FrontFundr. FrontFundr's entire process is online.
“So basically, what FrontFundr is all about is just enabling the greater investor community across Canada, and supporting these individuals through technology, and supporting companies to drive innovation and economic growth.”
[08:56] The Benefits and Risks Involved in Equity Crowdfunding
There's a 50% upward increase in revenue during FrontFundr raises. There is also support among a community of like-minded investors in FrontFundr.
Time is the primary risk involved in equity crowdfunding. Having a complete team to divide and conquer the process helps.
“Based on my experience and discussions with issuers and my knowledge of entrepreneurs? Definitely time. So, like having a complete team to support you definitely gives you the opportunity to divide and conquer the experience.”
[09:54] Handling Business Finances with Your CFO
As a female CEO, it can be difficult to do everything on your own while juggling a capital raise.
You need a team to help you, but get a consultant or a virtual CFO if you aren’t at that stage yet.
If you need a helping hand, a virtual CFO might be for you.
“Often, like a female entrepreneur is the CEO, but she's just doing everything. Juggling a capital raise on top of that is difficult and that is a hurdle.”
[11:03] Industries FrontFundr Works With
Consumer packaged goods are FrontFundr's bread and butter.
They also work with real estate and tech companies.
Jaime says that FrontFundr is industry-agnostic. Frontfundr works with businesses that can attract or already have several supporters.
[11:37] The Due Diligence Processes
FrontFundr’s Ventures team guides companies through the due diligence process and deal structure inside a capital raise.
In FrontFundr, they help the company with valuation, getting to know the business, and investment documents.
The first step in FrontFundr's approach is a complete data room. The data room of FrontFundr includes material agreements, corporate records, team information, and financial information.
The second step is a discussion with FrontFundr’s Investment Review Committee. It is a way of learning more about the company to prepare them for Frontfundr's third step, which is the investment documents.
And the last step of FrontFundr is marketing. The marketing side of FrontFundr helps with the launch.
[13:48] Where Valuing a Business Comes In
It comes down to how the business will use the capital to drive value.
Valuing a business helps you forecast the future growth of your business while raising capital.
The role of a virtual CFO is to build a forecast and to make sure the assumption used for the valuation is reasonable.
The projection of the revenue must be reasonable. Don't overstate nor be too conservative.
Valuing a business is also crucial in expenses and future investment. Listen to the full podcast to learn the best practices in valuation!
[16:43] Raising capital through convertible debt and/or hybrid financing with FrontFundr
When the company already has a specific valuation, FrontFundr helps with the capital raise and helps diversify the shareholder base. When the company has a debt-equity covenant, FrontFundr fills its equity side and optimizes capital structure.
In these situations, the company wouldn’t need a valuation ready because it’s already been done by Frontfundr.
“And then we're here to basically fill the equity side of things and optimize capital structures. So this is where the business can be like, "Hey, I have this term sheet, which is great.”
[18:10] Common Struggles with Ventures when Raising Capital
Using the raised capital to drive business value is crucial. It has to be the essential business driver to take you to the next level.
Once you successfully raise capital, you have to accomplish what you promised to investors or debtors and communicate properly.
Having no strong financial process in place can lead to incomplete, inaccurate, and misleading financial reporting.
[19:46] From equity crowdfunding to initial public offering (IPO)
Undergoing equity crowdfunding is beneficial if you want to go public and get listed in an initial public offering (IPO).
You need to have a certain shareholder base to go public on a specific exchange.
Listen to the full episode to know the notable companies FrontFundr helped in raising capital!
“We have a couple of success stories where companies have been able to raise capital with FrontFundr and see the benefit of growing their shareholder base with like-minded individuals, but also increasing their shareholder base and their shareholder numbers to meet the thresholds required to go public.”
About FrontFundr Director Jaime
Jaime McNally is the Director of Ventures at FrontFundr, Canada’s leading online investment platform. Before becoming Director of Ventures, she worked as FrontFundr’s Analyst for Due Diligence and Manager of Ventures. Jaime has led the FrontFundr’s due diligence and deal structuring for over 50 successful capital raises.
Before joining FrontFundr, Jaime earned her CPA at Deloitte and Ernst & Young. She worked primarily in Assurance, Corporate and Personal Taxation, and Transactions Advisory. Jaime also acquired her Chartered Business Valuator (CBV) designation and Master of Professional Accounting (MPAcc).
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