Grooming for funding and investment

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Louw Barnardt CA(SA) | Founder | Managing Director | Outsourced CFO  | mail me |


Every successful business reaches a stage where it has to choose its growth path. Either you grow organically, using operational capital as and when it’s available or you use growth capital in order to scale up faster.

If you are considering the fundraising route, there are a number of things you need to nail in order to be funding ready.

Build a great business

The best way to raise money from investors is to build a business that is so good that investors come to you! You can try really hard to be investment ready, but if you don’t have a good company first, it can be quite a tough exercise.

What makes a great business?

  • A clear growth strategy
  • A great business value proposition that serves a real purpose in the market
  • A strong team leading the business
  • Good cash flow management

As your business grows and improves, it will start attracting the right types of investors – who not only bring capital to the table, but also expertise and valuable networks that the company needs to scale up.

The following key steps are the tools you need in place for those conversations:

Have a clear expansion strategy in place

More often than not, entrepreneurs want to raise finance, but their strategy to grow the company after that is unclear. You need to have a crisp strategy laid out in order to convince investors to back you. There are existing resources in the business, as well as new avenues to consider.

Have a good financial model in place

You need to have a solid financial model that shows how your strategy is executed in monetary terms.

You should be able to demonstrate clearly how revenue, cost of sales, expenses, and capital investments are expected to flow, so the investor can see how that strategy turns into numbers.

Some pointers:

  • Plan ahead – it will save you a lot of time going forward.
  • Use the right tools for collaboration and efficiency.
  • Do your research. If you’re approaching a specific funder, some may have a specific template they prefer to use. So, read up and get it right from the beginning.
  • Your model needs to be smart and flexible. Incorporate those variables for when scenarios change – your financial model needs to be adaptable and cope with that.

Understand your company’s value

It’s important to look at what the person on the other side of the table would see in the business – of what value is it to them? If it’s a foreign investor who wants a footprint in Africa, the discussion will be different to that with a local investor. So, know your investor and know the demand.

Remember, your company valuation is not only a financial exercise. It’s also people and processes exercise which incorporates sales, marketing, and other aspects of your business.

Nail due diligence

Be proactive in making sure you have an updated bank of all your documents ready.

Historic financials, team CVs, tax compliance, and more, are all the different things to put in place for your due diligence deck. Put processes in place to ensure all relevant financial information is recorded and easily accessible for an investor, should the opportunity arise.

Sometimes a good due diligence pack can influence the price by up to 20% just by showing what management has done over time and how value has been built in the business.

Make sure that legal and HR is in place

Contracts and policies are some of the big things that often get neglected in building a rapidly scaling company.

Ensure that memorandums are in place, and be aware of the responsibility of founders and shareholders. Employment contracts and client agreements can all have a significant legal impact on your business. So, get them locked down, not only for investors but also for you as a business.

Get real

Only you know what the biggest gaps in your company are. Talk to your founders, and identify and address these problems first. Some gaps start with business owners being too busy in the day-to-day operations, leading to issues with compliance.

Why not bring in a professional in order to streamline your function and allow the management team to focus on growing the business instead?

There you have it. Don’t spend so much time on raising the next round of funding that you deviate from building the business. Also, first build a great company and be funding ready before entering investor conversations.



 

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