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Crossing the Funding Gap

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Following last week’s feature on seeking investment, Bethan Bannister Growth Finance Services Delivery Manager at Grant Thornton, Cardiff, draws our attention to key aspects of the funding journey.

The UK funding landscape is ever changing. There is now increased demand for start-up funding and more competition than ever when it comes to finding investors. New sources of finance, such as reward-based crowdfunding, have emerged in response to this demand, in an aim to address the funding gap for businesses seeking £500k-£1m.

Last month, almost 100 growth ambitious business owners gathered in Cardiff at the city’s second G by Grant Thornton Ready. Fund. Grow. Event. With guest speakers from Crowdcube, the budding entrepreneurs heard first-hand how to prepare and build their funding proposition to create impact with investors

The evening was aimed at small businesses looking to raise investment and seeking insights into today’s funding market. On the evening, we heard from:

The evening highlighted that now, more than ever, crossing the funding gap is about knowledge and preparation. How will you navigate the funding landscape to identify which source of finance is right for your business, without wasting precious time speaking with the wrong investors? What do you need to do before you seek out the ideal investor for your company? Our guests from the funding world shared their top tips and considerations when approaching investors for Seed round raises and feedback from the event was overwhelmingly positive.

Evidence x momentum x potential…

Equals higher chance of investment! There are three parts to the investment story. Evidence, momentum and potential. The product of these determines your valuation and likelihood to get funding. Your story should contain all of these three elements to guarantee investment.

Even if you are a pre-revenue business, investors will want to see evidence; evidence that you have spoken to potential customers, what their feedback was, and results from focus groups and surveys. The evidence should show how you have evolved your proposition and the concept to be relevant to your target audience.

If you are slightly later stage, investors want to see what kind of momentum you have picked up, and your revenue growth to date. Not just growth, consistent growth.

For the third part of the story, you need to demonstrate potential. What are your plans for the future? What does your pipeline look like? Do you have a new product development portfolio? Where is the market going? What are the key drivers? Do you have plans to enter into new markets?

Your business needs to show scalability and sufficient growth potential to provide an adequate financial return for the investor. Is this a growth story that will end up still having potential at the point where investors are looking to exit? These are questions you should be asking yourself, and answering in your approach to an investor.

Your team are your greatest asset . . .

There are many reasons why investors reject proposals; some rejections may be based on personal preferences or the investor being fully committed at that time rather than any fault with the business plan or pitch.  However, investor feedback does highlight some common reasons why proposals are rejected, one of these being the management team. We often hear that either, the management team lack the required skills and experience to lead the business, or the management team does not seem fully committed to the business – what are you putting at risk to make this a success?

Investors invest in people, not just business opportunities. So make sure you present yourself and your team as authentic, professional, credible and committed to the growth of the business. How do you do that? Showcase the key people in your business, their skills and experience, their commitment to the success of the business and importantly, evidence that they are delivering what they are supposed to deliver.

Always think of more than one round at a time . . .

Establishing a valuation is one of the most important steps in the fundraising process. It is often the case that proposals will be rejected by investors because the business valuation is too high for the current stage of the company. However, aim too low and you could miss out money or lose investors who think you lack ambition. Remember that investors are looking at this as a financial investment and are seeking an equity stake proportionate to their investment and risk.

Ask yourself how much money you will need until the next milestone. This then gives you a big enough runway to go out and find your next round. For very early stage businesses, it is best to raise enough money to see you through a 12-18 month runway so that you have enough time to demonstrate growth at the next point you go to the investment community for further funds. Thinking of more than one round at a time will mean that your current raise should be enough money to carry you to your next valuation milestone.

However, always remember to find the right investor who can add strategic value and has a real record of accomplishment. Do not immediately jump and take an investor that offers higher cash investment – investment is a partnership and they need to buy into your vision for the company.

If you are thinking about raising investment for your business and want to understand your options please contact Beth or call her on 029 2034 7558. Visit our website for more information on how our Growth Finance team can help you to achieve your growth ambitions g.grantthornton.co.uk.