Raising Finance

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5 questions to ask when considering growth equity

5 Mins

Traditional growth structures don’t necessarily fit all businesses, so consider the following factors to ensure investment growth is taken at the right moment for your business.

1. Is your business model proven and scaleable?

Where are you in your growth story? Have you ironed-out any initial creases, and is the business model scalable and profitable? Does it have a strong position within the market? If there is doubt in your mind, consider a period of organic growth to narrow your focus and give you an opportunity to learn exactly what is needed to drive it forward.

Investors are often seeking return within three to five years so make sure you are in a position to present a clearly defined exit strategy for those who work to these timescales.

2. Will the investor be a good ally?

Consider potential investors’ portfolios to see what they may be like to partner with. Some will be more hands-off than others, some will be more exacting about how you proceed after investment.

An excellent investor is one who is truly excited by what you’re doing and has the experience to bring more than money to the table. It takes effort and communication to find and partner with funders who recognises both the potential for return and what you’re trying to achieve in a broader sense.

3. Is control important to you?

What is your vision for the business? How crucial is it to retain control over all aspects of its growth? The answer to the second question can have great bearing on whether you choose to pursue investment or opt for an alternative route such as debt-funding.

If investment is right for your company, but it’s also important for you to retain control of its direction, choose who you approach with careful consideration of the kind of terms they work with and how much equity will be handed over.

Read more about raising equity for your business:

4. Does your business depend on a timely competitive edge?

If you are working with a product that needs swift delivery to market, it’s likely you don’t have the luxury of resisting an early investment round. In competitive, rapidly-evolving markets, choosing a potentially slower expansion through organic growth or debt-funding can be fatal to securing market leadership.

Ensure you are not being beaten to it by businesses that opted for growth investment while you took your time.

5. Are you ready to present?

Consider that your potential investors are outsiders. Your job is to present them with a clear, comprehensive and airtight proposal that allows them to easily see that it will be in their favour to invest.

Your management team is crucial in this process, and a significant portion of a funder’s decision to invest is weighted on their perception of your team’s ability to move the business forward.

If you have a model that works and pursue equity funding, make sure you have the accounts and forecasts fully prepared and a strong management team ready to respond to the kind of queries investors will be requiring clear answers to.

At MPB, I took the decision to do our first equity round at the right time for our business. We have invested heavily ourselves, leant on support from our banks, built our tech platform and got serious traction. 

With our autumn European rollout and 2016 US launch, we are now at the point where investment is the strongest way forward so we can really put our foot to the floor and bring onboard an even stronger set of skills as we push forward. The key for us now is finding the right people to partner with in this next stage of growth.

Matt Barker is founder of tech company, MPB.com, a platform for trading high-end used photo and video equipment.

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