Things to sort before you raise capital

Simeon Burnett explains what a growth business needs to have in order before it can begin the process of raising equity investment.

Compared to the plethora of advice for small companies on how to raise startup capital, there is very little for fast growing SMEs on raising larger amounts of capital for expansion. Many just assume that it’s easy for successful companies to get more investment, but there are more advanced things that a growth business needs to have in order before they begin the process of raising equity investment. Many companies are surprised with how long the process can take, but those who are well prepared will have a much smoother experience.

1. Know your numbers

When you are first starting out, your company won’t have a long trading history. But after several years of operation, you should have built up a solid financial track record and know your numbers inside out. Sophisticated investors will want to see your financial history and expect your management team to be confident in the numbers, both past and projected. Spend the necessary time with your accountant and finance person to get confident about your budget and projections. Your progress will be measured against these figures, so it’s crucial that you know them well and are confident you can achieve them. 

2. Growth priorities

By the time you are raising significant growth capital you should have a good idea of the main levers impacting your business. If you increase spend on marketing, how many new customers can you expect to generate? If you add more sales staff, does that increase the speed that deals are closed at? You should have a solid understanding of how the new capital will make a difference to your growth rate. 

3. Winning and exit  

Private equity, family offices and sophisticated investors are looking for a return on their investment. You should be able to articulate a clear vision of what your company will look like if you continue to grow and expand, and how that will generate a return for your investors. In order to do this, you’ll need a clear strategy for winning in your key markets. And although you may not need to explicitly state an exit strategy, you’ll need a credible comment from the management about how the board is thinking about exiting, and what the ambitions of the founders and major shareholders are. 

4. Competitors

Even if you don’t have any direct competitors, your customers could still choose a substitute product. You should be able to explain to investors the range of products in your industry and why your current and future customers will choose you. When marketing to your customers, talking too much about competitors can make you seem weak. But when talking to investors, having a full knowledge of your competitive landscape helps them learn about the industry quicker and also positions you as a credible expert. 

5. Elevator pitch

Companies in their early stages can get away with some vagueness in their brand and marketing because they might not have identified their target market yet. However, if you are raising significant investment then you should have your elevator pitch well rehearsed and be able to explain your point of difference clearly. Investors at this stage won’t necessarily have expertise in your particular segment or business model, so being able to easily communicate the important details and make a strong first impression will go a long way. As a mature business, you will be expected to cut to the chase when pitching.

Overall, raising money for a successful growth business can be just as hard as it is for a startup, if not harder, because now you have more than just yourselves, a few happy customers, and some big ideas to persuade investors with. For growth companies the expectation is higher because investment figures are larger and the company has had more time to mature.

While raising new equity investment may not be easy, it’s a worthwhile avenue to consider if the capital can significantly increase your company’s growth rate and bring with it skills and experience that can help you build your business.  

Simeon Burnett (pictured) is CEO and co-founder of private equity marketplace Snowball Effect, which helps high-growth Kiwi companies raise capital from private investors, family offices and the public.