MANY BUSINESSES aspire to raise finance to fund their growth – unfortunately, very few are successful.
To shift the odds in your favour you need to follow these six steps:
1. THE SOURCE
Equity has massive implications for dilution – so don’t ignore the debt option. This doesn’t affect equity and can be a quicker and easier source of funds. For example, Funding Circle in the UK will consider lending to a company which has a two-year history. A combination of debt and equity is often the ideal solution; this enables a cheaper cost of capital for the company, as it requires interest rather than a dividend.
2. THE FINANCIAL MODEL
Put your figures into a spreadsheet and test them. Try out different scenarios – see what happens to the numbers. This demonstrates that you are prepared for different outcomes. You must also show the different types of returns from the different sources of capital, cashflow for at least the next 12-18 months, and any dependencies. This will show that you are being sensible and serious.
3. THE VALUATION
To get a sensible, realistic idea of the value of your company, compare the most recent valuations for transactions in the space. Don’t pick an outlier valuation, instead choose something in the middle. This will show potential investors that you are being reasonable and make them more likely to invest.
4. THE MONEY
For example, Sola Bank and Baldetton Capital work in the £100million arena. Whereas EIS/SEIS and VCT funds generally work in the £1-5million sphere. For smaller amounts contact angel investors. A Google search will deliver a list of angel networks. Then dig into each one to see if you meet their criteria. Ask your network for recommendations and introductions, and approach your family and friends. These small amounts add up – and help give you seed that will attract a bigger fish later.
5. THE CONTACTS
Target your funders carefully, do some background research on them so that you know you are contacting the right people, that your business is in their sphere of interest and at the right stage for them, and that the amount of money you are looking for is appropriate for them.
6. THE DOCUMENTS
It is essential to prepare a one-page summary of the opportunity. Too much information is not helpful. This document should include a summary of the opportunity; what investment is being sought and what kind of business is going to be generated as a result, including a potential return if it’s possible to identify that. It must be an accurate summary of the business, be clear, concise and easy to read and understand.
Once a potential funder is interested they will then want more information. Approach this as a sales document. It must be able to work on its own – and not require you to be standing there explaining it.
It needs to answer the following:
• What is the business?
• Who are the management team?
• What is the market size?
• What is the opportunity within the market?
• How much money is needed?
• What is the money going to be spent on?
• What kind of business will be created post investment?
By following the steps above, you are more likely to be successful at raising the money you need for your business. Preparation, putting in the necessary time, and perseverance are all key aspects of the funding raising process.
Clive Hyman FCA is founder of Hyman Capital Services, offering expertise in due diligence and managing change in business including raising equity and debt capital, mergers and acquisitions, interim management, board management and governance, deal structuring, and company turnaround.
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