Service: Deal Advisory

How to be prepared when seeking external equity financing

By Jack Bettell

08 Apr 2021

Preparing for and executing a successful fundraise is often a key element of growing a business effectively. But how do you know when you are ready to seek external funding? And how do you prepare for opening your books to the scrutiny of external investors, potentially for the first time?

Timing

Timing is the ultimate key to successful fundraising. Ensuring the business is on an upward trajectory, has attainable growth opportunities in the near future, and has the bandwidth to handle an investment process are all important considerations. Make sure you are prepared by planning for the raise months in advance.

Know what you’re raising for

This may seem obvious to those experienced in raising funds, however it is frequently an area in which we see founders fall down. Investors will ask why you need their capital, and how you anticipate being able to generate returns on that capital.

You need to be able to confidently and articulately respond to questions relating to the use of funds: list out future key hires, planned marketing campaigns, technology development spend, and so on. Consider how this will lead to growth over the next 1-5 years.

Financial model

There are two key reasons a robust financial model is key to obtaining equity finance from investors. Firstly, a financial model is an excellent way of adding credibility to your business plan and the proposed ‘use of funds’ discussed in the previous paragraph. Secondly, demonstrating the extent to which investment made today will result in future profits is critical for providing investors with a sight of their eventual exit and return.

Pitch

Another vital element of the fundraising process is the investor presentation. Investors will want to see a management team that is experienced, incentivised, and dedicated to growing the business. Take time to prepare your presentation, and make sure you use this opportunity to ask investors any questions you have; much like in a job interview this will give investors comfort that you are engaged, and it is crucial to ensure that a prospective investor is the right fit for your business as you will likely be working with them for years to come.

Virtual data room

Finally, preparing a virtual data room well in advance of investors requesting information helps to ensure that momentum is not lost in a process. Being in a position to quickly grant access to a host of important documents demonstrates that the business is in order and ready to take on investment. The further in advance you consider setting up a virtual data room the more prepared you will be to respond to the scrutiny of investors.

In conclusion, being prepared for an investment round is vital to ensure the process runs smoothly and vastly increases the likelihood of success. Fortunately, there are many steps that can be taken right away to ensure your business is as prepared as it can be.

If you would like to speak to us about whether now is the right time to be thinking about raising external investment email myself or Nick Wallis today. 

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