Any other business

14 tips on raising equity finance

3 min read

25 October 2011

You're about to start fundraising. Before handing over a slice of your business, read these essential tips on raising equity finance.

  1. Ownership determines outcomes. First, do carefully consider whether you really need to raise external equity or whether you can keep it in the family. Bringing in others will impact on how you run your business – and the rewards you take away from it.
  2. Plan your fundraising thoroughly and be fully prepared. You only get one chance to make a first impression.
  3. Research your potential investors carefully to ensure that they are a suitable fit for you and your business. Consider their preferred investment size, their sector preferences and their investment style. Don’t try to put a square peg in a round hole. 
  4. Make sure your management team is up to scratch. If you identify weaknesses in your line-up, make the necessary changes or be prepared to explain how these will be addressed. 
  5. Be open and transparent in meetings with potential investors. No business is perfect, so highlight your problems and weaknesses and explain how you will overcome them.
  6. Get good advisors who care. Listen to their advice and use them as a gladiator to help you achieve your goals.
  7. Understand your financial position and forecasts. Be familiar with regularly used phrases and financial ratios that might be important in your business. It’s not OK to leave this to your finance team or your advisors. 
  8. Be clear about the amount and purpose of your fundraising. Set out clearly how the funding will be used and allow for contingencies. Think long term and do not raise too little. 
  9. Work with your advisors to establish the value of your business. Use a recognised methodology and do not be tempted to overvalue your ideas and achievements.
  10. Think about your exit at the outset. Explain to your investors how they’ll get their money back. 
  11. Remember that investors back people. Be likeable and believable, not arrogant and over-confident. 
  12. Be prepared for investors to carry out detailed due diligence on your business.
  13. Do your own due diligence on your investors. Talk to other investee businesses to find out how they interact with and help them. 
  14. Keep your investors in the loop. Maintain regular communication and share both good and bad news. Where appropriate, ask for their help. Always remember that you are both on the same side.

Guy Rigby is a director at Smith & Williamson. This is an extract from his latest book From Vision to Exit (Harriman House, 2011), available in paperback and eBook.