Lots of new businesses want to raise funds - very few are actually successful. So here are the steps you need to follow to prepare to raise finance:
1. Identify whether you need equity or debt - or a combination
Debt can sometimes be more appropriate than equity; it avoids dilution and can be easier to acquire, enabling you to save time and get on with running the business.
30% equity and 70% debt is a good ratio and can make the company easier to manage. It also makes the company more likely to attract further equity investment, as the potential shareholders can see that the management has understood that debt needs to be part of the company's financing strategy.
2. Create a robust financial model
Put your figures into a spreadsheet and test them with a number of different scenarios. This demonstrates that thought has gone into the financial model and you're prepared for different outcomes. Show the different types of returns from the different sources of capital, cashflow for at least the next 12-18 months, and any dependencies that need to be managed.
3. Be realistic about your valuation
To get a 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, see what all the values are and 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. Find investors
Funding a start-up will always be challenging. In the £1-5 million area, there are lots of EIS/SEIS funds, VCT funds, and plenty of pools of EIS investors. For smaller amounts contact the Angel networks - a Google search will throw up plenty of results. Engaging the services of an expert can make a huge difference as they will have personal contacts with the relevant funds.
Ask your network for recommendations and introductions, and approach your family and friends. Small amounts add up - and help give you the seed that will attract a bigger fish later.
5. Make contact
Once you have drawn up your list of people to contact, work through it systematically and methodically and always follow up. Preparation is key; do some background research so that you know you are contacting the right people, that your business is in their sphere of interest, is at the right stage for them, and that the amount of money you are looking for is appropriate for them.
6. Present the opportunity
Prepare a one-page summary of the opportunity - don't bombard people with lots of information. Include a summary; what investment is being sought and what kind of business is going to be generated as a result, including a potential return. It must be an accurate summary of the business, be clear, concise and easy to read and understand.
Finally, it's important to remember that fund-raising is a combination of a sales project and a numbers game; you're going to have sell the business to a lot of potential funders before you find the perfect match.
Sponsored post. Copyright © 2017 Clive Hyman is founder of Hyman Capital Services.