How will you finance your growth plans?
Steve Cordiner
Steve Cordiner, Head of Unquoted Investment

In these uncertain and challenging times, many growing businesses will feel they need additional capital to realise their ambitions and fulfil their potential.

But amid the COVID-19 pandemic and the broader fall-out, it may be harder than in the past to secure capital, whether you’re looking to raise debt or equity finance.

The key is to be well-prepared. If you’re ready to make an articulate and compelling argument for why an investor should back your business, you’ll have a much better chance of success.

Even in this difficult landscape, many growing companies will still be able to secure the funding they need to take their businesses to the next stage, but competition for capital means you need to know your value proposition inside out. Building your business case in the following five areas will help.

 

1. Know your customer

Understand your value proposition – You should be able to articulate your competitive advantage in a couple of sentences, quickly making the case for why an investor should support you rather than any number of companies vying for attention.

Understand your market – It’s crucial to show you’ve understood the dynamics of the competitive environment in which your business operates. For example, do you know who your competitors are and can you explain how you differentiate what your business offers?

Understand your product fit – The addressable market for your products and services may be much smaller than the total market. You must be able to explain where your business fits in and who will buy what it offers.

Demonstrate value to investors – Think about how you’ll show investors that you’re delivering value for customers and can grow the business further – client testimonials could be useful here.

Demonstrate long term potential – It’s important to set out a long-term vision of the business’s growth strategy to identify the right opportunities. For example, make sure you can explain how you will stay ahead of the competition, including new entrants. What protects you from rivals copying what you do?

 

2. Get to grip with the financials

Make sure you can give investors visibility. Your finances must be transparent, offering investors a clear picture of its current trading position, assets and liabilities. Investors should be able very quickly to understand the return on investment that the business offers.

Show that you know how you’re making money. You should be able to use the business’s financial reports to explain to investors where growth is coming from and what the least profitable areas are currently.

Identify the crucial levers of performance. Talk investors through the key performance metrics for your business, explaining why they are important and what they reveal about growth and future prospects.

Get to grips with your profit and loss account and your balance sheet. While investors won’t expect you to necessarily have accountancy skills, you should be able to show you have a clear grasp on the company’s current financial position.

Provide forward-looking analysis. Financial reporting provides a snapshot of what has gone before, but investors are focused on the returns they will earn in the future. It’s important therefore to be able to use the financial data to project future profitable revenue streams.

 

3. Explain why and where you need investment

Set out your specific investment need. You should be able to explain exactly how you will use the investment you are pitching for and why you are prioritising the activities that it will fund. For example, are you looking to recruit new talent and if so, who? Do you need funding for a specific technology need?

Evaluate the impact of investment. Look to set out clear growth targets for the business and explain how funding will help you achieve these objectives. Such targets should be ambitious but realistic.

Explain how this fits into your long-term strategy. Investors will want to understand your long-term vision for the business – and how their funding support will help you get there.

Think about what else are you looking for from an investor. Don’t be afraid to acknowledge that your business needs help other than funding support. Talk to investors about the advice, contacts and experience they can bring to your business. This self-awareness will increase your credibility.

Be open to challenge and partnership. Investors are looking for partners with whom they can work closely for mutual benefit. It’s important to show that you are prepared to engage in such partnership, welcoming challenge as you work together to move the business forward.

 

4. Prove you have good judgement

Surround yourself with quality people. Investors ultimately back people rather than businesses. Your management team should demonstrate sufficient quality to encourage investors to commit, rather than putting them off.

Identify talent gaps. Developing businesses are unlikely to have all the talent they need, even in key roles. Explain where you need to recruit and consider how to bring in new skills and experience. For example, the addition of non-executive directors or other advisers may be helpful.

Be honest. It’s perfectly acceptable to admit there are questions to which you haven’t figured out the answers yet. In fact, investors are likely to be unimpressed if you aren’t sufficiently reflective to explain where you need more support.

Be prepared to take less money. Don’t put the business under pressure by raising more than it needs without having a clear vision of how the funding will be deployed. Be realistic about your needs.

Set out an outline range of funding. Talk to investors upfront about the future support your business may require under a range of different scenarios for growth and performance. Show that you understand the risks your business faces as well as its full upside potential.

 

5. Focus on the long-term journey

Explain how you will deliver long-term value to all stakeholders. Investors aren’t looking for a quick return; the best businesses are able to deliver sustainable and consistent value creation over an extended period. Explain how you will achieve that.

Focus on the business not the fundraising. Putting the pitch together will inevitably require time and resources but use this opportunity to think through what it is that you’re trying to achieve with the business. This is also the story that investors want to hear.

Leverage your investors’ support. Focus on what your investors will bring to the business now and in the future – how they will support you over time.

Be confident. The best businesses will always be able to access capital – show your passion and belief in what your company can achieve.

Understand your rights and responsibilities. Work with investors to develop a relationship where both sides understand what they have committed to and how they will meet that commitment.