How AI will Reshape Raising Capital for your Startup

Published on March 12, 2024

Staying ahead of the curve is essential in the fast-paced realm of Silicon Valley, where deals are made and fortunes are forged or lost, with speed playing a role in many of the outcomes. And right now, one technology is causing ripples of excitement throughout the industry: artificial intelligence (AI). Yes, all we hear is companies that are developing this technology, but how will you be able to use it one day to get your company from the idea stage to fully funded without spending the hundreds or even thousands of hours that many founders are currently allocating to execute that process?

Picture this: you're gearing up to secure funding for your next big venture. It's a journey fraught with complexities, from packaging your company, marketing it, negotiations, due diligence, and more negotiations. All these hours, you and your team are manually doing all this work. (Look to some of my past articles where I break down the entire capital raise or exiting process) But in the future, with AI by your side, navigating these waters will become a short and smooth ride.

Let's take a closer look at how AI is currently and will revolutionize every step of the process:

1. Data Room Revolution

Preparing a data room for potential investors traditionally involves painstaking manual labor. Dragging files, scanning documents, tagging items, and hoping all the information is there. You often forget what items still need to be added or updated. But with AI, this task will be streamlined with AI algorithms that can sift through mountains of data, spot red flags, identify missing information, and generate comprehensive reports in a fraction of the time it would take a human team.

2. Crafting Compelling Market Materials

The pitch deck, executive summary, Confidential Information Memorandum, or whatever documents you decide to use to reach out to investors are exhausting to create. Compiling these materials is an art form that people spend their entire careers perfecting. Getting these documents costs time, money, and knowledge that many founders do not have. AI will bring a new level of sophistication and customization to this process, using advanced algorithms to analyze the data room and pull the information to craft pitch-perfect presentations and materials, ranging from eye-catching visuals to persuasive narratives. Let’s even take that to the next level and imagine software that pulls information on the investor you are about to meet. It knows what that investor wants, selects the correct information from your data room, and creates a customized pitch deck just for that meeting, ensuring that your company shines in the eyes of potential investors.

3. Precision Targeting

Finding the right investors for your company can be like searching for a needle in a haystack. I cannot tell you the number of conversations I have had where an entrepreneur thinks their company is about to get funding because they talked to an angel investor at a pitch event. They have no idea what that investor's investment thesis is (what companies they will write checks for, based around parameters such as in a particular sector, size, revenue, EBITDA limit etc.) but believe all investors are the same. They have no idea how many conversations it usually takes and how to filter those conversations and connections down to the most likely investor candidates. With AI-powered targeting, it could be more like shooting fish in a barrel. AI algorithms will analyze investor preferences and match them with companies that meet their criteria, saving time and increasing the likelihood of a successful deal.

Imagine a tool with access to information on the investor, such as the investment thesis, and information they might not want to say publicly but is very important, such as the amount of capital they still have to deploy. With that information and real-time data from your data room, AI could decide when the best time to connect and initiate a communication sequence in a timely manner, which could have fantastic results. For example, you will get notified that a new customized deck will be sent to an investor in 6-weeks when your company is expected to be very close to their minimum investment criteria based on their investment thesis with the caveat that the investor will have raised funds to allow them to sit down and start writing checks.

4. Streamlining Negotiations

Negotiating deals can be a time-consuming and labor-intensive process exacerbated when one side might go into a negotiation with incorrect expectations, built on rumors based on missing data of another company getting some crazy valuation and not truly knowing why. AI, one day, might be used to analyze the market, synergies, value drivers, deal terms, and much more (yes, I am assuming with AI, there is going to be a lot more data available as well for the algorithms to use) to bring clarity and offer suggestions on why other deals were priced the way they were, putting things into a better perspective for all parties. This might help expedite the negotiation process and ensure that both parties are satisfied.

5. Lightning-Fast Due Diligence

Due diligence is a critical step in any investment transaction and one of the most time-consuming. How many people have sat there waiting for a report from a third-party service provider? We are just waiting for this expert’s opinion, but he is on vacation or the famous, “We only want to work with this one group to do IT due diligence and they are backup two weeks.” AI is changing that. One example is a company whose founder I just talked to last week. www.evalify.ai an AI-powered platform that analyzes ~190M patents from 170+ jurisdictions to spot legal risks and opportunities for investors in minutes.

By automating many parts of the due diligence process, AI algorithms can quickly sift through vast amounts of data, identify potential risks or red flags, and generate comprehensive reports, allowing deals to move forward faster.

6. Document Drafting Made Easy

Finally, when it comes time to draft legal documents, AI will again lend a helping hand. By analyzing existing contracts and legal precedents, AI algorithms will generate draft documents tailored to the deal's specific needs, saving time and reducing the risk of errors. I am waiting for the time (this does sound scary, though) when all the interactions on a deal have been recorded, such as Zoom and phone calls. AI then uses this information to update all the contracts before signing based on all the conversations, so there are no “this person said this, or we thought that” conversations at the last minute.

But while AI is and will undoubtedly transform the transactional landscape, it's important to remember that it's not a panacea. As an investment banker focused on helping companies through mergers, acquisitions, and raising capital processes, I’m excited when all this technology gets created and adopted. You might think I should be scared because I’ll be out of a job, but in reality, I’ll get to use my time on what I like to do—building relationships, fostering trust, and providing personalized guidance to clients before, during, and after these transactions. After all, behind every deal is a human, so as we embrace the AI-powered future, let's not forget the human element at its core.

AI will change the funding-raising process, opening doors and unlocking many opportunities. I have heard of or been introduced to companies working on solving many of the things above, and with the speed of AI, many of these could already be solved, but I am just unaware of them. If there is a company you think helps solve any step in the capital raise process, please place their information below in the comments.

*** The content is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional(s) before entering into any M&A transaction. ***

For More Information

Shawn Flynn is a Principal at Global Capital Markets, a premier middle-market investment bank with a global presence. Shawn has expertise in mergers and acquisitions, capital markets, financial restructuring, and secondaries. He speaks Mandarin and is the host of the award-winning Podcast The Silicon Valley Podcast. Connect with him on LinkedIn.

Shawn Flynn, Principal SF@GlobalCapitalMarkets.com

Tel (415) 578-1445 Ext. 4

About Global Capital

As a middle market investment banking boutique, Global Capital provides mergers and acquisition advisory services, access to corporate debt and equity capital, and strategic advisory services to successful middle market companies. For over twenty five years, our team has offered companies a unique blend of sophisticated financial expertise and access to the global marketplace of buyers, sellers and financiers.

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