Ten keys to raising capital from investors
We know why businesses need to raise capital, but often people can fall short when trying to go about it.
Paying for a new website, a more aggressive marketing strategy, expanding the team, engaging smart money, buying your competitors, expanding to a new location, or just having cash at the bank for opportune moments can be tough.
What needs to be done to prepare? What’s a reasonable valuation? Do you need documentation? Where do you find investors? Does the pitch matter as much as they say it does?
In the current economic climate, it is more difficult to raise money from private investors than it was in the pre-global financial crisis. However, research shows that private investors have cash ready to be deployed and are seeking private opportunities to invest. This leads us to the 10 most important factors to becoming ‘investor ready’:
Making the future real
Develop and communicate a growth path that is attractive to investors. This includes having the right mentors and advisors around you and developing a leveraged sales and marketing strategy.
Achieving the highest possible valuation
The core drivers of valuation for early-stage businesses are the management team, market opportunity, and having an exit strategy in place both for your business and for potential investors.
Identifying ‘strategic’ value
The strategic value in your business is the key asset that will make your operation more valuable to certain investors. Ask yourself, ‘who can really make more money from this business than I can?’
Only bring on smart money
Half the value investors bring is non-financial. It’s the networks, the experience, and the guidance. Use your capital raising as an excuse to build up the strength of your team.
Stage it
Raise only what you need in the first round. Use this capital in the business and feel the uplift before going to market again. This is a sure-fire way to dilute as little as possible.
Package your business
There are three key documents required when going to market. An information memorandum, an executive summary, and an investor presentation.
Find investors
The fastest way to capitalize is to raise money from those who are in your existing network. If you don’t have an existing network, begin to engage mentors and advisors who one day might invest.
Accelerate growth
Once you understand how to raise money, one of the main growth accelerators may be to acquire a competitive or complementary business without using your own money.
Doing the deal
There are some clauses that can pop up which put the entrepreneur and even the business at a disadvantage. Ensure you negotiate favorable terms.
Your path to exit
Assess and identify the different exit options for your business. The main question on the investor’s mind is, ‘how am I going to get my money back?’
Jack Delosa is an entrepreneur and investor. Find out more from him at
www.mbeeducation.com.au
