Capital Raising For Small Business – Always Get the best Advisor

So you are thinking of raising capital for your business by bringing in a new equity partner (i.e. with funding) and giving up some stake in your business to do so?

New and emerging businesses often demand fresh capital. As a founder drives their business and builds their empire, they are often prepared to take a longer term view, reducing their 100% holding by bringing in new capital to fulfil their dreams.

However raising capital is a difficult exercise for young and entrepreneurial businesses. In essence you are asking  investors to give you their cash and speculate that you are the next Henry T. Ford who’s just about to commercialise the automobile (such high expectations are not beyond some investors, such is the premium they place on their capital).

Let’s consider Henry Ford. He started one company with outside capital that ultimately dissolved, commenced a new one that he left (the forerunner to Cadillac) and then created another company with other investors’ money before the business finally became successful.

While Henry is a great lesson in innovation, commercialisation and tenacity, he also knew what it was like to ask for investment capital (and clearly, he was quite good at it!). So if Henry can ask and receive capital, given his early somewhat chequered career, so can you.

To be as successful as Henry Ford, as well as being entrepreneurial you need to understand the capital raising process and the mindset of the people you are likely to deal with.

Investment proposals today (post GFC) are now more than ever likely to face very conservative, deliberate people who carefully assess investment risk and return. Even if the investor appears to have ‘bought in’ they are usually smart enough to employ an army of advisors to make sure they don’t commit before at least hearing theirpaid for investment advice.

The background of such investors is usually that of people who have been successful in business, now have financial capacity and regularly receive a range of alternative investment proposals to consider. If your investment appears to make commercial sense, you have a business plan, a strategy, good people and you can demonstrate this to the investor and their advisors, then you and your business might be worth “a punt”.

Don’t underestimate the emotional aspect too – investors are human and they prefer to do business with people that they like.

Here are our 7 must-dos for capital raising – take care of these before commencing the process.

•  Ensure you have exhausted all attempts at raising finance from banks and other financiers.  Family and friends might, might be a possibility too.
•  Look at your business through the eyes of an investor – have an answer for their burning question “What’s in it for me?”
• Select a good advisor very carefully. Look for advisors who have credibility in the market space they occupy – don’t choose a local consulting firm if you are looking to raise $500,000 and above
•  Look for an advisor you feel comfortable with – you’re going to spend a lot of time with them so you might as well enjoy their company.
•  Ensure that you are actually ready to give up some equity in the business – this is critical.
• Recognise this could be a 6 month process and that the business still has to function – so make sure you have enough management capability within your business. (Also harden up!  This will be a very busy, frustrating and trying time for you – it’s stressful.)
• Go back to Tips 3 and 4 and make sure you’ve got this right.

Don’t forget the non financial benefits which may come out of this – new business connections, a fresh set of eyes and the capacity to draw on additional business experience – all of which could greatly assist you in achieving your business goals.

Go for Gold!!!

GBSH Consult is a profit improvement and turnaround global consulting firm that delivers essential advantage to the world's top influential businesses, individuals and organizations.

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How to Raise Private Equity and Venture Capital

In a very competitive equity market, how do you position your business to attract the capital you need to survive and thrive?

Private Equity (PE) in Sub Saharan Africa remains one of the key sources of funding for small to medium sized enterprises and a key driver of economic growth.

In the current economic climate, raising traditional bank debt to finance business growth or succession has become incredibly challenging, and as a result many business owners are turning to PE firms.

This is not surprising given that the PE and Venture Capital (VC) market in Sub Saharan Africa has grown significantly since 1998. Investment values are on the rise. And while South Africa remains the region's largest PE market, opportunities beyond its borders are starting to attract more interest. The value of investments in sub-Saharan Africa increased by 38% in the first half of 2011 compared to US$1.7 billion in first six months of 2010 according to the Emerging Markets Private Equity Association. The range of deals available to PE investors is also expanding into financial services, technology, telecommunications, agriculture, consumer products and infrastructure.

While the PE and VC market experienced a period of consolidation during 2010, investment levels stayed relatively resilient despite the general uncertainty.

With more active PE and VC firms in Africa, it’s important to know how to position your business successfully to attract the necessary capital in this very competitive equity market.

Here are four tips on how to approach Private Equity and Venture Capital Investors:

1.   Understand their sector experience
PE and VC firms usually have specific and in-depth expertise in a particular industry sector. There is no point making contact with an investor who is focused on technology start-ups when you are trying to pitch a service business.

2.   Invest in face-to-face time
Potential investors like to know who they are dealing with, and this is best communicated in person. It gives both the investor and the company time to assess if the relationship is going to be sustainable. Remember – the PE or VC investor is going to be a significant partner and stakeholder in your business.

3.   Know their transaction size
Most investors will have a typical or preferred transaction size, which can range from $1 million to $20 million. Understanding the transaction appetite of an investor could minimise wasted time and effort on both sides.

4.   Engage a trusted advisor
If you are uncomfortable or inexperienced in presenting to sophisticated PE or VC firms you should engage a trusted advisor to assist you in the process. We have undertaken a number of these roles and have found that business owners and management can continue to focus on running the business while the necessary material for the PE or VC firm is professionally prepared.

Many PE or VC firms won’t schedule a meeting unless the company seeking funding can provide a two page executive summary and a 15-20 slide presentation that conveys the business.

As a minimum, the information required by the PE or VC firm at the initial meeting includes: company vision, market size and growth, competition, product/service, business model, management team overview and financials.

GBSH Consult and Sandown Corporate UK have strong relationships with many PE and VC firms and we are experienced in positioning companies to attract the necessary capital.

As always, preparation ahead of any interaction with a Private Equity or Venture Capital firm is imperative to attract their attention.

After all, they are buying into your business with the capital they provide.
Investing time to do your research on the PE or VC firm and having the necessary material ready will increase your opportunity to attract capital and stand out in a very competitive equity market.

GBSH Consult is a global leading national performance improvement and turnaround firm with proven success in solving complex business challenges.