There is plenty of dealmaking potential today for founders and lots of advice out there about how to increase the value of your business, but that’s not actually the main thing you need to prepare for when walking into an investor meeting. My seven tips for doing a capital raise and choosing the best investment partner are a little different. They come from my lived experience building and scaling an enterprise software company to upwards of $200 million in annualized recurring revenue with 25,000-plus customers in more than 100 countries, all while remaining profitable since inception. 

Consider the Reverse Term Sheet 

The best advice I can give founders looking to raise capital is to consider the power of the reverse-term-sheet model. I’ve used a reverse set of terms twice, first with Silversmith Capital Partners and then with TA Associates. 

A reverse term sheet is a list of items that a future investor will have to agree to in order for you to consider them as a potential long-term partner. You can think of it as an answer to the question, “What are your immutable laws?” Things like, “We’re only going to hire in certain locations across the globe” or “People are our most important product and we will never trade down people.” 

It’s not about the money you’re raising or your minimum multiple. It’s about the things you won’t trade off as a new partner comes into your life. The list should be clear, succinct, and still welcoming to investors. For me, the reverse term sheet was met with celebration both times. Our investors appreciated that we were clear on what’s negotiable and what’s not. Right off the bat it’s a tool that can be circulated to the investment committee to help them answer the question, “Do we want to take on the incremental risk by investing in this company?” 

Examples of my own immutable laws include a tight definition of equity allocation, along with making sure the equity that is allocated across the company doesn’t have preferred elements to it that will benefit the investor or select team members at the expense of others. It’s important to me to outline a ratio between how much funding will be allocated toward primary capital, put on the balance sheet of the business, or used for acquisition versus secondary capital, which is paid out to a team or prior investors. 

Use Time as a Weapon

The fundraising process is a marathon, not a sprint, so take your time. A reverse term sheet actually comes in handy in this regard because it’s helpful for founders in framing their own thought process around a capital raise. 

Keep in mind, finding the right partner could take quarters or it could take years. It took me two years to find Silversmith before my first capital raise with them in 2019. I acknowledge there are situations where time may not be on your side if you’re running out of capital and need to raise a round, but if you can use time as a weapon, do it.

People are More Important than Capital

Your relationship with your investors is a long-term partnership. These are people who are going to be instrumental in helping you shape the direction of your business, advising on go-to-market strategies and how to scale. In the case of Appfire, I was looking for partners to help my team build a durable business that will last for decades.

This isn’t about the cash that you’re allocating to your business model. In a long-term partnership, people are more important than the capital you’re raising. The people you surround yourself with and their network are key: You want confirmation that a potential investor has a large and capable network that you can tap into that is relevant to you. Watch for signs of their experience in shaping other businesses with similarities to yours. 

If you’re an investor, I’d suggest you look for a vision you believe in and a founder with whom you want to build a long-term relationship. The fundamentals of a business are of course important, but it all starts with the founders, management, and conviction in the vision they convey.

Make Sure Your Values Align

For the founder-funder relationship to be successful, it requires alignment between the value systems of both parties. Spend time with investment firms, ask them to explain how their business operates and to articulate their core values and beliefs. Make sure you build in enough time to get introduced to other founders they’ve invested in, and to other partners across the firm to ensure you’re testing that people-over-capital model. A shiny penny is not worth more than a dirty one.

Meet as Many Investor Groups as You Can

Investors are trained skeptics. Meet as many as you can and meet with them frequently in person. They’re very good at finding the gray areas of your business, and you want to hear just as many of those comments as you do the accolades. In these meetings you’re likely going to hear about the challenges they see in your business and the things that you’re not executing so well. You’ll get a feel for the ways they can be informative and help you shape your direction. 

After those meetings, jot down the questions they asked along with what you told them. You’ll find that your responses actually open up your aperture to what you need to change in your business. I used this model, and it was unbelievably informative and enabled us to make changes to our business long before selecting Silversmith and TA Associates as our partners.

Consider an Outside Banker to Represent You

Bankers can be very instructional around a capital raise with introductions to investors who are like-minded and complementary to your business model. Spend time talking to a banker in your region about your business model, your goals for a capital raise, and what you’ll use the funds for. They can help you represent your business back to investor groups and can assist in shaping what the value of your business is, as well as material to the stance and direction of the economy. 

They can also help you prepare your presentation materials and your financials to be used during the diligence process. When you get into this process it’s like having two full-time jobs, so having a banker on your side helping with one of those full-time jobs can be really beneficial. Know that the banker, or any adviser, works for you, not the other way around. A good banker will listen and provide feedback without skewing you in any direction.

Don’t be Distracted by the Honeymoon Phase 

To keep the engagement actionable and focused after the close, include a 30-60-90-day post-investment action plan in the reverse term sheet. Address the things you’ll do with the business now that you have the help of the investor—things like reaching out to the investor network to grow an executive team, building a new board with independent directors, and establishing an audit committee and compensation committee. 

When both parties are aligned from the start on the definition of success—and on the timeline—it will yield a better outcome and a better company.