How To Raise Funding For Your Scale-up

When you scale up your start-up, new challenges will arise. One of which is how to raise funding to expand your business at a faster rate. You have a few options to finance your growing venture. Two of the biggest are debt financing or equity financing.

Debt financing and equity financing

Debt financing involves borrowing money from lenders, given that you’ll pay it back with interest over time.

Equity financing involves selling a portion of your business’s equity to investors who, in return, have a say in your business decisions.

In both situations, financiers expect returns from your venture, but only equity investors can influence your business operations.  

Both debt and equity financing are good options to raise funding for your business needs. You just have to understand the pros and cons of each to weigh which one works the best for you. You don’t necessarily need to stick to one, as you can work with a mix of both. 

Options to raise funding

Finding lenders can be easier than finding investors because you can reach out to banks or debt financing companies. You’ll need to provide them with some documents and requirements which will be the basis of their loan approval. While it may seem simple, debt financing can be limiting, as lenders will have terms and conditions that restrict you from taking on certain opportunities.

In dealing with investors, it’ll take a lot of legwork to convince them that your business is worth investing in. You’ll also have to take time to look for the right one.

Since investors will have equity in your business, you want one that has the same vision as you for growing the business and can add value with their expertise. 

Regardless of which financing option you go for, you have to convince them that your business is worth funding. Before reaching out to them, make sure you prepare well.

If you’re confident and ready with the right information to hand, it won’t be too difficult to convince them why you need their money and how you’ll use it to create returns for them in the long run. 

Priming your business

Your strategic direction

Now that you’re scaling up, where do you want to go? How do you plan to grow your business rapidly?

Your answer to this is your strategic direction. It gives you and your key players a guide on how to operate your scale-up and ensure that you’re all aligned, before reaching out to investors. 

Before deciding on a strategic direction, conduct a detailed analysis of your business. Try doing a SWOT Analysis to figure out your business’s strengths and weaknesses while also exploring opportunities and preparing for threats. You’ll be able to view your business from a larger and long-term perspective. 

You may also do a MOST Analysis to ensure that you’re devising strategies aligned with your main mission. A MOST Analysis is a framework that lets you define your mission and objectives first, so that you can create strategies and tactics directly aligned with the goals you’ve set. 

The business plan 

Once you have your strategic direction, you can translate it into a business plan which will assure potential investors that you’re able to execute your strategy. If you already have one, don’t be afraid to modify your business plan when necessary. New scale-ups may experience difficulty in transitioning from the start-up stage, so doing a strategic review can help identify the changes your business plan needs.

A clear and specific business plan is key to showing your implementation process from start to finish. Begin by defining your business. This includes stating your mission, objectives, and organisational structure. 

After that, you also have to go in-depth in presenting your products or services, and the target market you’ll be tapping. Demonstrate that you know your products or services as well as your customers well enough to create a profitable business. You should also detail how you’ll find new customers and sell to them. 

Finally, you must also include information that tells investors your business is sustainable. Including a crisis strategy assessment, performance monitoring metrics, and a plan for exit are valuable additions to your business plan. They provide assurance that your business won’t just sink when faced with foreseeable challenges along the way. 

Proof of your business performance

With scale-ups, it’s a given for potential investors that you already have a working business model and you’re looking for funding to take it to the next level. So the burden is not really convincing them that your business can sell products or services. It’s more about convincing them that your business can grow exponentially. 

How will you show this? Provide proof of your business’s existing performance. This can indicate your potential to grow and can complement your business plan to show feasibility in the long term.

You can provide proof of your business performance through financial statements, performance reports, and annual reviews. These documents show actual data and metrics that matter to investors. So make sure that you’re consistently and regularly documenting these data.

Pitching with conviction

Once you’re ready to apply for loans or meet with investors, you have to pitch your plan with conviction. Show them that you know the ins and out of your business and that it’s worthy of getting funding. You also have to be clear about what you need from them and why. 

Aside from presenting your business plan, tell them exactly how much money you need from them. Where will the capital be allocated and why? They should have an idea of how the money will be used because it’s their investment after all.

Investors will also want assurance that their money won’t go to waste. While you cannot predict the future, you can create projections with the information you have at hand. Go into detail with your business plan and present the return on investment it could generate. 

Things to remember

Debt and equity mix

If you already have a lot of debt, it may not be possible to get into more, as additional creditors may not have confidence in your financial status. Try to explore alternative financing options through equity investors to balance it out. Just make sure you have a robust plan to turn your capital into earnings. 

Choose your financiers wisely 

If you decide to borrow money from debt financing companies, assess the company first to see if their terms and conditions work for you. On the other hand, if you opt for pursuing funding through investors, you have to choose one that will have your business’s best interest in mind. They’ll have a stake in your business so it might be good to find an investor that can also provide valuable insight during decision-making. 

You can never prepare too much

Funding is essential for scale-ups to fuel their strategy execution. In order to not waste any time and get the best outcome while trying to raise funding, prepare yourself as much as possible. Have all the information on hand, research everything, and consider getting expert advice. 

You can learn more about preparing your business for investors with the Investor-Ready ebook. It covers advice from where to start, to what to include in your pitch.

Get help to raise funding

Support from seasoned business experts can be useful in priming your business to raise funding. You can check out the list of Fractional Directors offered by Boardroom Advisors. They’re all experts that can provide strategic advice on clarifying your business direction or refining plans that can make your business more attractive to investors.

Written by: John Courtney

John is highly ranked in the Top 100 UK Entrepreneurs list by City AM and is winner of the Lifetime Achievement Award from techSPARK. He has been a Board Director himself for over 40 years and first started placing Non-Executive Directors over 25 years ago. John founded and ran seven of his own businesses including a Management Consultancy for 10 years, a Corporate Finance offering for 10 years and a mid-sized Digital Agency for another 10 years.