Raising investment is no walk in the park, especially in the current climate, but thorough preparation will make capturing the attention of investors and ultimately convincing them that your investment opportunity is right for their portfolio much easier.
To help your hunt for investment succeed, Chantelle Arneaud of Envestors, reveals their 6-Step Guide to raising capital:
1. Get investment ready
Ensuring you are investment ready is the most important thing a company hoping to raise capital can do. And yet, this stage is often overlooked by entrepreneurs eager to get their investment opportunity out in front of investors, hoping they can charm them into opening their wallets.
In this market – charm will get you nowhere.
Being investment-ready means having a compelling investment proposition – this includes a myriad of things – from the answer to the question, ‘why is this business a good investment’- to valuation, to sales forecasts, P&L statements and share price.
Here we provide a helpful checklist of what you need at a minimum before you contact any investors:
Investment deal details
- Deal structure
- Share price
- Eligibility for the Seed or Enterprise Investment Scheme (S/EIS)
Business plans including:
- Financial forecast with revenue
- P&L for the last full year
- Historic accounts for the previous 5 years
- Strategic approach
- Market size, total and addressable
- Competitor information
- Management team profiles showcasing relevant experience
- Details of any non-executive directors or board members
- Product information, including any patent or patent applications
- Proof of traction, including metrics around customer acquisition, key partnerships etc.
- Legal documentation including an investment agreement
Having all of this alone, isn’t enough, as the competition for capital is extremely high; it needs to be presented clearly and succinctly to engage potential investors.
2. Make sure your valuation is fair
Getting valuation right is critical. Valuation is one of the key reasons an investor will reject your opportunity at first glance.
There is no shortage of methods you can use to arrive at a valuation – from a bottom-up analysis, to sweat equity, to using a discounted cash flow model, each having their pros and cons.
Spreadsheets aside, we always recommend using a benchmark analysis to assess an appropriate range for valuation as a starting point. This type of approach includes researching the market to see how companies similar to yours who have recently raised capital have valued themselves. Based on recent, real-world data, this analysis will always give you the best indication of where you should be.
3. Beware of regulation
Equity investment is regulated in the UK by the Financial Conduct Authority (FCA). This regulation exists to protect investors and as a company raising finance, you do need to be aware of it.
Fully understanding the regulation is no small feat, but at a minimum it is important to understand that you can only market your investment opportunity broadly if it has been signed off by a firm or individual authorised by the FCA.
If you do not have this sign off, which confirms that your investment opportunity is clear, fair and not misleading, you could get into hot water with the FCA. Breach of the financial promotion regulation is a criminal offence and transactions could be unwound and worse, you could have to pay damages.
4. Make your investment opportunity accessible
Once you have all your documents and sign-off in place, you need to make it easy for potential investors to find your opportunity and investigate it.
There are platforms available in the market, which allow you to create a profile of your opportunity and make confidential documentation available via a controlled data room. This enables you to let potential investors conduct first-stage due diligence at their leisure while ensuring your plans stay out of the hands of your competitors.
In-built analytics provides an additional benefit as you can see how many people are looking at your deal and are therefore potentially interested. If the numbers are low, you know you may need to revamp your profile and/or up your outreach.
5. Put together a killer pitch deck
First impressions are everything in early stage investing. Investors will quickly decide they are not interested, and few will be willing to give it a second look.
So, when you do get a chance to get in front of investors, either through a pitching event or a one-to-one meeting, you’ve got to make it count with a killer pitch deck.
At a minimum, here are the things that every good pitch deck should have:
- Market Overview: What problem are you solving and how big is the market?
- What is your product/solution?
- Business model: how do you actually make money?
- Traction: Who are your clients? How many do you have? What does your sales pipeline look like?
- Profile of management team: track record, sector knowledge etc.
- Competition: Who are your competitors.
- Financial Projections Summary
- Investment Offer: How much investment are you seeking? What is your pre-money valuation? What will the proceeds be used for?
- Exit strategy: What is it and what are some examples of recent exits in your market.
Beyond these core elements, ask yourself what would set you apart. People invest in people, so remember to connect through informal language and tell a story to engage investors.
6. Keep telling investors how exciting your business is
Getting all of this together is a lot of hard work, but it doesn’t end there. Many entrepreneurs make the mistake of getting everything ready and then sitting back and waiting for the cash to roll in. This is not how it works.
Investing is not like buying shoes. It’s more like buying a house. Think about the process of that for a moment. It starts with looking online at what’s in the market, then maybe viewing a property a few times, then researching the neighbourhood, thinking it over, investigating deeds and building structure, thinking it over some more before going ahead. It’s a slow, careful decision.
It’s your job to make that decision easier. Not only by being investment ready, but by continually showing how exciting your business is. This means keep interested investors informed about your successes.
You need to be screaming about things like new customers, good financial results, press coverage, key partnerships, relevant regulatory approvals – anything and everything that shows your business has serious momentum.
These are just some of the things you can do to increase your chances of raising capital. There are no guarantees in life and the market is very tough right now, but if you have a great business, a strong team and you present yourself well you’ll be in a much better position to get the capital you need to grow and exit.
About the author
This guide has been written exclusively for ByteStart by Chantelle Arneaud of Envestors. Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities and sectors – creating the single marketplace for early stage investment in the UK. Envestors has helped more than 200 high growth businesses raise more than £100m through their private investment club. Envestors is authorised and regulated by the Financial Conduct Authority.
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