Raising finance for your business: preparation is key

All businesses, in order to prosper, will require some level of investment. There are lots of different ways a business can raise money for its future growth but usually it takes the form of debt (from banks and other lending institutions) to equity finance, where no bank debt is available, or it is insufficient. Equity finance is often provided by venture capitalists, private equity providers or business angels (usually high-net worth individuals who have an interest in supporting early stage or growth businesses).

Before applying any of the above, it’s important to “get your story straight” and put yourself in the best possible position for raising finance, because you often, only get one chance at this. There is much more demand than supply, so equity raises, in particular, only happen if there is an exceptional business case for it.

The following are my top tips for putting your business in its best possible light for this critical fund raise:

  • Reach for the sky. Be bold and ambitious. However, do not project your business beyond the earth’s atmosphere! The assessor will need to believe your story. Optimism is vital but needs to be tempered with realism and a small dose of downside planning.
  • Can it be a dominating or disruptive force in its market? Not all funders are looking for unicorns (although they would like to) or market killers, but the ability to be in the top quartile of that business type, hopefully a market leading business, is really essential.
  • Know your competition. This is often as simple as: “has it got an equivalent in the USA?” We tend to follow successful business models that have established themselves elsewhere, because going into the unknown makes funders uncomfortable.
  • Has the business protected as much as it can? For instance, does it have an intellectual property (IP) plan? Funders are not necessarily expecting a suite of world-wide patents but will expect a plan to optimise any IP in an affordable and as sensible way as possible. Does it have incentivisation plans for its people? And last but not least, does it have contracts with customers – at least in principle? 

There is often an ability to fund business that is pre-revenue but it should really have a believable plan as to when revenue can be generated and from whom.

  • Is there a costed business plan that looks one, three and five years out? This should attempt to calculate the rate of cash “burn” and express what the finances will be used for. You are very unlikely to be able to raise a “war chest”.
  • Finally, it will have to have an exit plan attached to it. Equity investors will need to realise their investments between three and five years from the date they put their money down (they are typically looking to triple the value of their investment in that time). If you cannot convince them that this is foreseeable and reasonable, and indicate the methods of how it is to be effected, then you are unlikely to be able to attract the investment. 

If you are looking for support with raising funds for your business, please contact the author of this article.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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