Looking to raise equity investment this year? The reality is, few businesses are investor-ready from the outset, especially if it’s their first time fundraising.
When it comes to growth capital, the first thing to consider is whether your business is actually ready to scale-up. In other words, make sure you have the infrastructure in place to achieve rapid growth, before you try to raise the funds for it – or at least have a good understanding of where your gaps are, and how the right investment partner could help you bridge them.
If everything falls into place, a small number of nimble and well-managed businesses can achieve investor readiness in a matter of weeks. But for most, a timeframe of 3-6 months is more likely.
As the most active investor of growth capital in the UK, we’ve got a good idea of what growth investors look for in a business, and how founders can best prepare themselves. We regularly speak to companies that aren’t quite ready yet, and while our guidance will vary depending on the business, it often follows the same themes.
1. Map out your growth strategy
Businesses seeking growth capital typically use this investment to finance ambitious growth plans – M&A, international expansion, new product launches, new facilities or equipment, etc.
Whatever your growth strategy, it should be underpinned by a detailed plan, supported by as much evidence as you can gather. This may include things like market data or financial projections, and importantly, a record of historic delivery to support future assumptions. The plan should highlight your vision for the business, your strategy, your opportunities (and what needs to go right to capitalise on them), plus the resources required – financial and otherwise.
Ideally, you’ll already have a broad business plan for keeping the company on course with your vision and strategy. It’s important that this plan aligns with your growth objectives too – and with the objectives of potential investors.
It’s crucial that any plan being presented to external parties is thorough enough to inform, as well as excite, prospective backers – while being built up in a credible manner.
2. Build a management team to deliver on this strategy
An investment is a relationship, and relationships depend on people. Your growth plan should identify the leadership, technical and professional skills of your senior team. Investors will need confidence that you have the right people in place to deliver your growth plans, and are aware of any gaps that need addressing along the way.
If your plan focuses on product development, for instance, investors will likely want to see an R&D expert on your management team. If you’re planning a buy and build strategy, it may help to have an acquisition-driven CFO, with experience in buying and merging businesses.
If you decide to recruit new team members, before seeking investment, consider that experienced and effective managers are in high demand. It can take months to hire the right people – especially once you add in long notice periods or gardening leave.
Of course, some businesses will be looking to raise growth capital for exactly this, to expand or strengthen their senior team. Many investors will also have large networks and vast experience supporting in this area, so can help you identify and fill potential talent gaps, as part of their investment – and they’ll appreciate this kind of collaborative approach.
3. Develop a credible financial plan
The due diligence stage of the investment process is crucial for a successful fundraise. If your financial reports and accounts are in the wrong format, insufficiently detailed, or in any way non-compliant with legislation, investors will find it difficult to progress. Professional advisers can help you draw together the necessary information, and can create sales and cashflow forecasts to support your growth plan.
While you’ll need to make some assumptions in your forecasts, they should be reasonable, considered, and backed up by evidence (including historical data) as much as possible. You should also make every effort to explain and quantify risks, with mitigation measures included where possible.
As part of the due diligence process, you may be asked to share detailed supplier and customer details, including contracts, market data and historical records. Having corporate information stored in an organised format will save a lot of time during this stage – and will prove to investors that your business is diligent and well-controlled.
4. Target the right investor
Of course, while you’re preparing to fundraise, there’s nothing to stop you having conversations with potential backers. If an investor sees your business as a good fit, and they’re willing to take a long-term approach, they may even offer to assist you with the process.
Before you start though, remember this is a two-way street. While fundraising can be challenging, there are many investors in the market, and not all will be right for you and your growth plans. Alignment is critical – and should be a non-negotiable for you and your team.
Some investors have specific expertise in market sectors, some are generalists; some are known for seeking returns in a short timeframe, others are more patient in nature. You should focus on engaging with those that seem like they’d be a good fit for your business. Don’t waste your time (or theirs) on a bad match.
Again, a professional adviser may be able to help here. Assuming you have access to good advice, identifying investors that are well-suited to your business should take weeks, not months.
