Fund Raising. Where in the world do you start?
This is precisely the question most businesses start with when they want to raise external funding.
Whether you are a start-up, established business, or anywhere in between, locating the start point for a fund raising is the first hurdle you will face. But despite commentary on how hard it is to raise funds, is not the lack of funds that is the issue; it is knowing when and where to go amongst the myriad of funding options available: #grant #crowdfund #VC #PE #angelinvestors #banks #smallfunds #largefunds #incubators #sectorfunds #startup #growth #investor.
But the challenge does not stop there. When you start to investigate these options, you then face the criteria filters; each one of these funding options have to ascertain whether you fit the eligibility test for their fund: #size #age #revenue #profit #sector #tech #lifescience #nottech #notlifescience #region #growthprofile
The challenge, should you choose to accept it is:
How do you find the probable amongst the possible?
Shotgun Fund Raising
I think the “shotgun” approach to fund raising is fine but has drawbacks. This is where you send your fund raising pitch far and wide to attempt to connect with as many people as you can, in the hope that there will be “the one” in that pool. In tech fund raising, you are absolutely jostling with a lot of potential candidates among a lot of tech-hungry, but selective, funders. I have seen start-ups who have used the shotgun approach, primarily as they see it the only option due to their status in the most challenging of fund seeking groups; the “pre-revenue”s.
The down-side to this method is that it takes a significant amount of time and energy, which distracts founders from the core focus of the business: customers; staff; sales; quality; customer service. Of course, it will certainly get your name out into the market, but I would like to flag a warning here: it can be a very lonely and a relentless affair and so I would recommend it is done with a co-founder who has the same determination to go on the attack with this long-haul route.
But, there are other ways.
Network and Incubate
Over the last few years, network hubs and business incubators have sprung up across the world. These facilities seek to connect businesses to a range of advisors (government and commercial) who are required to navigate today’s business environment, including fund raising.
Also funded by commercial and government backed organisations who are looking to support commercialisation, you also find a plethora of support in one place, looking to assist you with your growth aspirations. This shortcuts networking in a big way!
Sometimes these hubs require you to take up residence on their premises. This is not always expensive or a “lost cost” as networking can undoubtedly bring clients and sales opportunities when you ask your neighbours the right questions. Further, their model relies on you growing and taking up more space within their premises, which provides an underlying lever for them to provide continued support going forward.
For the more established business, you will already have a network of financial and legal advisors, whether you use their services or not. These pools of people are often connected to banks, PE/VC and other funding options and so mine your network for all it’s worth to find your future funding partner. Of course, your bank could be your first, but not only, port of call.
But without employing a team to focus on fund raising (generally reserved for the large companies), you are still somewhat on your own in terms of having to do the grunt work: networking, connecting, financial modelling and pitch-deck design. However, you can at least holster your shotgun, as you should now be connected to better possible options.
Strategic Fund Raising
If you fail to plan, you plan to fail!
A more structured approach is to plan the funding programme upfront and invest time to work out the probable funders to go to and spend more time focussing on them!
This strategic fund raising programme enables you to go to market having better understood the funders’ motives, prior investments and eligibility criteria. As you have now taken the shortcut to the probables, you can also be more agile to move on if they say no, as you have a list of other probables to go and see. (FYI when an investor says “No”, they mean “No” unless you have something new or fresh to show them.)
A primary consideration in fund raising, is that you should not just be looking for an investor; you are looking for an investor partner.
This is an investor who is networked in your sector and has connections that will be useful for your business; an investor who understands the sector and will stand by you when times get rough; an investor who has experts in their midst who have taken the path you are on and can share their experiences. Sometimes, this is worth more than the money!
Tame the cash-flow wolf
Of course, the cash-flow wolf is always at the door, pressurising businesses into a heightened state that can lead to a forced shotgun approach. Often, this can be because of the lack of time, planning or investor traction, but I would argue that if you are not getting traction, maybe you are in the wrong investor pool. You are at risk of giving away more than you would seek to if you are under pressure, so perhaps a cost cut-back is more in order to give you more time to find the right funding option.
Take a Partner
But whatever your strategy, make sure you plan ahead, keep your eyes open and don’t do it alone. There are professional partners out there whose sole interest is to help you understand the funding landscape, build and test financial models, get you “pitch-deck ready” and support you throughout the whole journey.
Yes, they often want paying, but the good ones should feel like they would be a good extension of your team in the first meeting and can demonstrate tenacity in the funds raising exercise. They should also bring the experience and connections that you are seeking to ease the journey, maximise your potential return and improve your chance of a successful fund raise.
Rupert Lewis works at Premier Corporate Finance’s Manchester Office.
An experienced director with proven track record in supporting growing businesses, including start-up, SME, PE/VC and plc organisations, Rupert has extensive global M&A and fund raising experience and is actively supporting businesses seeking funding and exit advice.
Contact Rupert on: firstname.lastname@example.org
Photo credit: Top ‘compass’ photo by Aron on Unsplash