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Opinion

The simple numbers behind raising capital from investors

- January 15, 2020 2 MIN READ
Photo: AdobeStock

 

Raising capital for most people is made to feel like there is a mysterious art to the process.

The truth is, it is nothing more than a marketing and sales exercise. Marketing is the interest attraction, and sales is the conversion to an investor.

The only difference, people are a lot more passionate about capital raising because it is for their baby. We all believe we have the most beautiful baby, regardless of how many people tell us otherwise.

Many companies reading this are most likely going to be looking at raising capital in 2020.

If you were to shift your thinking about your capital raising, to thinking about it like a campaign, you would then start to set some outcomes and KPI’s for yourself.

Wholesale Investor Managing Director Steve Torso. Photo: supplied

Some simple questions to think about;

1) What is your current potential (interested) investor to investor conversation? 1 in 5, 1 in 10 or 1 in 20, perhaps 1 in 40?
2) What is your average investment size?
3) What is your conversion rate from lead to an interested investor?

If you have an understanding of these metrics, it starts to form a baseline of the actions required by you in 2020 to achieve your capital raising outcome.

Let’s use the example of someone looking to raise $1 million. If your current conversion rate is 1 in 10, and your average investment amount is $100,000, this means that in 2020, you need to speak to 100 interested investors in 2020.

An interested investor is one who has taken action to view or engage with your investment material.

To put it simply, you need to be speaking with 10+ engaged investors every month.

Now you may be thinking, “well, I only want investors putting in $500k+”.

From our research, the number of investors looking to put in $500,000+ in a first investment into a company is less than 11%. Also, from our research, what investors invest in follow-on rounds can be substantially higher in future rounds. $50k today can be $1mill in a future around.

As you are thinking about 2020 and your capital raising ambitions, start to look at the numbers and actions required to achieve those outcomes.

 

  • Steve Torso is the co-founder and Managing Director of investment platform Wholesale Investor, which has connected innovative, emerging companies looking to raise capital with more than 24,200 high-net-worth investors, fund managers, family offices, PE and VC firms, government bodies and industry participants.

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