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Analysis / Business

6 Steps You Need To Take To Raise Business Finance

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Many businesses want to raise funds – very few are successful. Here are the six steps you need to take if you want to achieve your funding goals:

1. Do You Need Equity Or Debt, Or Both

Too often people only think about equity. But, this has massive implications for dilution. Most business owners forget the debt option – yet this doesn’t affect equity and can be a quicker and easier source of funds. There are plenty of debt providers who will assist early stage business providing they have the right management and the right track record. For example, Funding Circle will consider lending to a company which has a 2-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. Create A Robust Financial Model

Put all your figures into a spreadsheet and test them. Try out different scenarios – see what happens to the numbers. This will demonstrate 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 which need to be managed. This will highlight your professionalism and show the investor and debt provider that you are being sensible and serious.

3. Be Realistic About Your Valuation

To get a sensible, realistic idea of the value of your company, compare the most recent valuations for transactions in the space and ensure you have a balanced perspective. Don’t pick an outlier valuation, instead pick something in the middle. This will show potential investors that you are being reasonable rather than fanciful, and make them more likely to invest.

4. Where Do You Look For The money?

For example, Baldetton Capital works in the £100 million arena. In the £1–5 million area, try EIS/SEIS funds and VCT funds. This is where an introducer like us can be helpful in providing introductions and knowledge of the market place. For smaller amounts contact Angel Investors. A Google search will throw up lots of results of Angel networks and then you need to 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. Making Contact

Once you have drawn up your list of people to contact – work through it systematically and methodically – and always follow up. 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. Fundraising is an art not a science; you can be lucky or unlucky, it’s usually not up to you but you do have to make sure that you contact enough funders so that you can start to manage your own luck and tap into as many people as possible.

6. The Information

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.

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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.