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 bank for opportune buying moments. We know the ‘why’ but often early stage businesses can fall short with the ‘how’ of capital raising.
What needs to be done to prepare? What’s a reasonable valuation? Do I need documentation? Where do I 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 pre-GFC. However research shows that private investors have cash ready to be deployed and are seeking private opportunities to invest into.
So what’s the number one challenge that prevents investors from getting involved in early stage businesses? Not seeing enough suitable businesses. Wholesale Investor Magazine, with a database of 10,500 high net-worth investors have found that 91% of investors will invest in a start-up business so long as it has the right entrepreneur at the helm and a solid team.
Over the coming months, I will be expanding on each of these 10 Keys Raising Capital to hopefully provide some insight into how you can get your business to a point of “investor ready”, and partner with some investors that can fuel the growth of your business.
1. 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.
2. Achieving the highest possible valuation – The core drivers of valuation for early stage businesses are management team, market opportunity and having an exit strategy in place for the business or the investors.
3. Indentifying ‘strategic’ value – The strategic value in your business are the key assets that will make your business more valuable to certain investors. Ask yourself, who can make more money from this business than I can?
4. Only bring on smart money – Half the value investors bring is non-financial. It’s the networks, the experience, the guidance. Use your capital raising as an excuse to build you’re A-Team.
5. 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.
6. Package your business ready to go to market – There are three key documents required when doing to market. An Information Memorandum, an Executive Summary and an Investor Presentation. More on this later.
7. Where to find investors – The fastest way to capital 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.
8. Acquiring to accelerate growth – Once you understand how to raise money, one of the main growth accelerators may be to acquire a competitive or complimentary business using none of your own money
9. 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 in the deal.
10. Develop your path to exit – Asses and identify the different exit options for your business, the main question on the investors mind is, “how am I going to get my money back?”
Jack Delosa is a Gen Y entrepreneur and investor and was recently described by Sunrise as “The Young Aussie Millionaire That Didn’t Finish Uni.”
Jack has been named in Australia’s top 10 entrepreneurs under 30. From having his company listed in the Fastest 50 Start-Ups in Australia, to raising over $5m for his personal clients and acquiring businesses with his panel of investors, Jack Delosa is an emerging leader for future and existing entrepreneurs. www.the-entourage.com.au