Capital Raising - The 10 Keys to Success
Investing in small companies is a people orientated activity. It’s not the idea, product or the technology that’s important; it’s the people who are important. It takes time to build trust in a relationship and it doesn’t happen in the first meeting. It’s generally unrealistic to expect to complete your capital raising within 4 to 6 weeks if you don’t know your investors.
It is important to take some time to understand what type of investor you are looking for. Write down you key requirements. Investors come in all shapes and sizes, so if you know who you are looking for, you have a far better chance of finding them.
Most investors are very successful business people. It is unrealistic to expect them to hand over their hard earned cash without some degree of control. Have respect for the Investor and their abilities. You also need to carefully consider how you are going to work together to successfully realise your vision.
Companies spend $10 thousand, $20 thousand, or more on their point of sale material to professionally present their products and services to their customers. It always surprises me that entrepreneurs or CEO’s don’t follow the same approach and prepare professional point of sale material to sell an investment in their company. Your business is far more valuable than your individual products or services.
The most common mistake is that entrepreneurs or CEO’s don’t provide the right information that Investors are looking for. It’s like Marketing 101; provide the product or service that customers are looking for and they will buy it. It’s the same with Investors. Research suggests that there is a perception gap between what Investors want and what Entrepreneurs or CEO’s provide.
Apart from having a good Business Plan or Information Memorandum, you also need a good presentation. The Business Plan or Information Memorandum may be the first document an Investor sees, but it is the one on one presentation that delivers the impact. Your story and your presentation must be very persuasive.
In order to determine value, watch the sale of other businesses in your space and the movement in the valuations of comparable listed companies. Value can be a difficult issue and without a firm and robust valuation, you haven’t properly prepared for your capital raising.
Put your people forward, because Investors rarely back the “one person” business. Investors will be looking at your management team as well as your board of directors. Your ability to manage and work as part of a team will be put under the microscope. You need to highlight your past successes and demonstrate the capability to execute your plans.
During the due diligence stage, credibility with the Investor will be won or lost if you can’t demonstrate what you have said in your fund raising documents. For example, if key agreements, critical for future growth are not signed, Investors will rightly ask, what else hasn’t been done in building this business. It’s fine to passionately sell your business, but you also need to demonstrate that you have put the fundamentals in place for success.
Raising capital is a time consuming experience. If you are not getting the response you are looking for, you need to do two things; focus on the cash and then step back and see if you need to change what you are doing. One very strong sales orientated entrepreneur says “you need to sell your way out of a cashflow crisis”. Not having the cash places you in a very difficult negotiating position. Stepping back and considering why things are not happening may help you make the necessary changes. Successful entrepreneurs or CEO’s are always finetuning their businesses looking for solutions to problems.
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