Raising your first equity investment is a big step towards scaling up, allowing you to build out technology, your product and team in order to fuel growth. It can be a daunting task to undertake but there are now multiple start-up funding options available to a company seeking equity investment.
Whilst there is no one-size fits all approach to raising investment, there are a few important points to consider to ensure a smooth and successful fund-raise. James Darlington, Investment Manager at Maven, outlines some simple factors that could attract investors during their assessment of your business:
A clear and concise business plan
All companies looking for equity finance should provide a business plan which includes:
- Company overview - a concise description of your business, the product or service offered (USPs; market differentiators) and the growth strategy;
- Investment proposal - a description of the funding ask, valuation and how it will be utilised;
- Market overview – identification of the target market - how the company is positioning itself in that market as well as marketing & sales plans and competitor analysis. A knowledge of the market and competitive space is important, being able to articulate the opportunities and threats and how you plan to address these shows clear business vision;
- Management overview - a description of senior management roles and biographies of management, demonstrating prior experience and suitability for the role;
- Financials – provide up-to-date financial performance, 3 year financial projections supported by reasonable analysis and assumptions (revenue growth, cash burn/ run-rate etc.), cap table and funding structure; and
- Exit strategy – identification of possible exit routes (e.g. IPO, trade sale, secondary buy-out). Outlining your aspirations around an exit event will help align investors’ interests with your own from the outset.
An investor likes to see traction in the form of revenue growth, customer wins and technology/ product development. Evidence of early traction is important as it provides assurance to the investor around the key growth assumptions presented in your plan.
A ‘sticky’ revenue model is where a company has contracted clients. It typically involves some sort of retained service agreement or subscription and moves away from project-based work. Investors like to see a recurring revenue model due to its predictable nature which makes forecasting more accurate and simple.
A strong and experienced management team
Successful businesses are more than often led by capable management team. Investors therefore look for companies with a strong management team who have sector expertise or previous experience of scaling and successfully exiting a business.
Flexibility in deal structure
Investors like to see companies that are flexible in their deal structure as this makes it easier for the investor and the company to agree on a deal structure. There are multiple structures available other than a simple cash for shares which can aid a successful deal being agreed, especially if there is a bridge between valuation expectations.
Strong market fit, an attractive sector and strong growth potential
It is important for your product or service to fit well within the relevant market in order to ensure that it is competitive, can scale and solves a real problem. Investors like to see businesses with a clear USP, that service an attractive & growing market, with demonstrable evidence of being able to secure market share as this has the potential to offer strong long-term profit potential.
If you’re looking for investment to grow, Maven manages a range of funds that can support business growth across multiple sectors and funding scenarios. Contact Maven’s local team today on 0161 233 3500 to find out more.
The Northern Powerhouse Investment Fund project is supported financially by the European Union using funding from the European Regional Development Fund (ERDF) as part of the European Structural and Investment Funds Growth Programme 2014-2020 and the European Investment Bank.
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