Many businesses of all sizes may at some point look to raise finance for various reasons, such as expansion and growth and investment. As part of Business News Wales’ weekly feature series, we ask Welsh businesses;
What advice would you give to businesses looking to raise investment?
Bethan Cousins | Deputy Fund Manager
Be prepared! And sell yourself!
Investment ready companies usually have either a business plan (especially important if they’re a start-up or diversifying into a new sector) or financial projections and account information ready. If you need help crafting this you can talk to Business Wales or a range of different accountants and solicitors across Wales. Working with good advisers will often give a funder greater confidence in your proposition.
You also need to sell yourself, what’s different about your company – why a funder invest in you? Funders will want to hear about your successes, your market strengths, your goals and how you’re going to get there.
Do you have a strong management team behind you or do you know how you’re going to address any skills gaps? It’s also important to do your market research, identify your niche and who the competition is. Knowing all of this will make it easier for an investor to say ‘yes!’
Claire Marshall | Manager Advisory
On the back of the wealth of positive feedback we have had from the forty eight fund raising businesses who attended our Growth Finance Readiness(GFR) event, clinic and masterclass, held in Cardiff last week, I would say pick up the phone and have a chat. As I write this, it is just three days after the events and we are already arranging meetings with investors, what’s not to like? In addition, my one key piece of advice is to try and get a warm introduction to funders, as cold approaches are so often unsuccessful. Knowing that funders receive hundreds of opportunities a year, the crucial success factor of Grant Thornton’s GFR service, is proving to be our ability to directly open doors to the right investor and ensuring our client’s business plan lands with impact. This is a win:win for both parties and importantly with our GFR fee being just £3500 this is an affordable option for many dynamic businesses with growth potential.
Mathew Sutton | Director
Businesses face a number of hurdles, particularly in the early stages. One of the biggest hurdles many businesses will look to overcome is that of raising investment. Here are our top tips for a successful first or hundredth fund raise:
- Ensure you have a strong business plan with realistic numbers that can be backed up – investors will look at your numbers and will expect them to be accurate.
- Listen to your advisors– have an open mind and be transparent about what you want and where you are in the process, your advisors are there to help and guide you.
- Be Organised – make sure your company’s register of members and Companies House filings are up to date and correct. Investments can often be delayed if historic filings have not been completed correctly.
- Talk to people– the best advice can often come from someone who’s recently been through the same process.
Alex Parr | Managing Director
Raising capital can be a daunting prospect for the uninitiated. First things first, ask yourself the following questions:
How much capital do I need?
Be realistic and make sure you’re asking for the right amount. Going back asking for more rarely works.
How do I raise the capital?
Wales has a very strong background in venture capital. Organisations like Finance Wales are investing anything up to £3m at a time in Welsh SMEs. This can then be supplemented by crowdfunding platforms, asset match, equity financing, angel investors and debt financing provided by financial institutions.
What is the value of my company?
This determines the amount of borrowing and the amount of equity share you would be asked to give up.
How do I negotiate the best deal?
Consider the amount of capital to be invested, the timing of the investment, return on investments and when it will be paid back. How certain is the return and who has control if anything goes wrong?
Kate Innes | Director of Business & Finance
Know your numbers and how they are built up including what assumptions you made and why. Get your market research together and make sure it clearly stacks with your assumptions and your business plan. Chemistry is important – does your organisation and a possible new investor fit culturally. The cultural clashes can destroy relationships quicker than poor numbers. Finally remember you are doing a deal so be prepared to give – in this situation more often than not, less of more is better than owning all of nothing.
Colin Batten | Head of Partnerships
Raising investment is never easy, but it can be the quickest and most powerful way to scale your business.
It’s not just the cash injection that can help, but the experience and connections that the ‘right’ investor can bring.
Startups are increasingly looking for Angels that have successfully built and exited companies in the same market, or have other particular skills they need to grow. This support can ensure companies are able to use tried and tested solutions to solve problems, and quickly penetrate markets via their extensive networks.
When it’s time to move from seed funding, into multi-million investments from Venture Capital firms, startups need to look at their past and current ‘portfolio’ of investments. This is the best indicator of whether they are the right fit for businesses and future success.
Navigating the investment waters can be choppy, and that’s why we’ve launched a new tech Accelerator for Wales ‘Digital Dozen’ to get companies ‘investment ready’ and connect them with investors.
KTS Owens Thomas
Tanya Wilson | Associate Director
When it comes to raising investment, a well thought through business plan with a clear strategy that sets out the investment requirement is an absolute necessity. The business plan should include integrated financial forecasts which show profit and loss, cash flow and an overall balance sheet which are backed by realistic assumptions, ideally for a three year period. This will assist in determining the funding requirement and will be vital for any investor who is interested in your business. In preparing these it is important to consider sensitivity analysis on the financial forecasts to demonstrate the impact of any variations to what you have forecast. For instance, the impact on the cash flow of the business if your plans are delayed, if there is a late payment from a customer or if there is a fall in sales for instance. Consider your options when it comes to debt, equity, crowd funding or business angels to ensure you make the right decision for your circumstances and the business. Think, who is investing in your business? Are they the right fit? And finally, be prepared that the cost of investment will likely vary but if security is available it could result in a reduced interest rate.
Smart Anchor Ventures
Mark Hindmarsh | Director
Having raised £80m plus in funding across 15 or so businesses I’ve found each fundraise to be different, however experience has taught me there are common things which always apply:
SET AND MANAGE YOUR EXPECTATIONS
It is important you understand that raising money takes time, (on average 6 – 9 months). Fundraising for your venture can become a full time job taking you away from what you should be doing, i.e. building your business. Be prepared to meet a lot of potential investors and have multiple meetings with them.
REFINE YOUR VALUE PROPOSITION
Your investment documents must clearly validate your case for funding. Investors want to know what impact their money is going to make to the business growth and more importantly where it will be deployed to deliver them a return. In simple terms be able to show how each £1 invested today will generate (£X) in value within (Y) years.
BE PROPERLY PREPARED
If you’ve not raised capital before, get help from someone who has or better still hire Advisors to get you investment ready, manage the process and negotiate the terms. Negotiation is a skill that can be learned.
CHOOSE THE RIGHT TYPE OF INVESTOR AND RIGHT MONEY FOR YOUR BUSINESS
Seek out “Smart” money, i.e. funds from investors who bring more than cash to the deal. Consider all funding types and sources – there are many, but not all will be right for you. These include; High Net Worth Individuals, Angel Syndicates, Family Offices, Venture Capital, Banks, Crowd-funders, Corporate Venturing and Private Equity.
Pro Steel Engineering
Richard Selby | Director
When we started Pro Steel Engineering 5 years ago we thought our knowledge would help us gain quick success, but we soon realised we had lots to learn.
One of those was raising investment. We had no money and the ambitious target of doing over £3 million of work in our first year.
Despite our knowledge and expertise the bank wouldn’t lend to us, so we had to work with our suppliers to get credit to finance the work we had promised to deliver, which meant scaling back our aspirations. Fortunately all our fundamental suppliers put their faith in us.
So my advice for businesses looking to raise investment would be to have realistic goals, to not expect investment to come easily or quickly and to build strong relationships with trustworthy individuals and businesses that can help.
Graham Leslie Morgan | Managing Director
In my opinion any attempt to raise finance must sit alongside a very clear strategic plan for that specific Business. That plan needs to fully set out in simple language:
- What Products on services are being sold.
- Who will buy them now and in the future and why are they being bought.
- Market profile and perceived competition.
- What impact Social, Economic, Political and Technology factors can have on the business.
- Who will be doing what within the business and the culture that exists based on the values and vision.
- Detailed financial figures which demonstrate ‘sustainable, profitable growth’.
- What specifically any investment or funding is required for and what is the most efficient combination that meets the needs of the business and its owners.
- What does the business want to be famous for?
From my many years’ experience in Banking I regularly found Business Owners identified they wanted funding or investment first and then built a plan in support. Absolutely the wrong approach. By setting out what you want to achieve as a business owner and documenting what that involves investment may not be needed. In true terms investment means giving up a stake in your business in return for cash coming in which will need to be repaid at some stage in the future. As such the Investors driver is return on investment whilst that may not be the priority for the business owner. A robust Plan independently facilitated usually gives the business owners choices which I feel is most important.