Scale-up Business Guide to Getting Investor-Ready: The Raise

Is your desire to scale-up your business? 

Scaling up is about creating the capacity for your business to grow, fast! 

You may try to grow as a business but not have the right structures and processes in place so even though you’re trying to move forward, you’re actually hitting obstacles which are hindering your progress.

To develop the infrastructure you need to allow significant business growth you will need investment. If you have not been through the process of raising funding before then you are likely to have many questions.

This article will help to guide you through the questions you are most likely to have in order to get you investor-ready.

The first step you should take is deciding how much money you need to raise because that will inform every other decision you make. Plan your business for the next 18 months to work this out.

How much should I ‘give away’ when I go for investment? 

How much of your business you give away will depend on what stage your business is at. If you’re looking for your first round of funding, a typical amount to give away is between 10-20% of equity. 

If you give away more than 20% because you want more money immediately, it could prove to be a mistake in the longer term as the business grows. The value of what you sold would increase faster because of your business growth so you would gain more money in the long run if you kept more of the equity. 

At the other end of the spectrum you wouldn’t want to go below 10% because it’s likely an investor with little equity will not have a strong desire to be too involved with the company. An investor needs to feel invested in your company, its not always just about the money.

If you go for many smaller amounts, then there is the risk that you won’t be able to raise the amount you need.

Investor-ready

What if I need more investment in the future…do I give away more of my business? 

If you have given too much equity away in your first round of investment, when it comes to future funding rounds your share will become more and more diluted. 

By the time you’re looking for future investors and funding, your company should have grown and therefore so has its value. Your equity will be worth more and you may be able to give smaller amounts away that would still have a high monetary value. 

You just have to make the mathematical decision as to whether giving up more of your equity will still lead to your desired profit because the investment will facilitate much larger business growth.

Is the value of my business diluted for the people who invested in the initial round? 

If a business goes into further funding equity rounds, they will issue new shares which means the people who invested at the very beginning will have a smaller percentage of the business. 

However, because of the growth of the company, the value of those original shares will have gone up. So, monetarily there is likely to be an increase even though the overall equity percentage is lower.

Do I need to know how all of this will work at the very beginning or could things change as my business grows?

As with all aspects of business, the more preparation you put in the better chance you will have of success. You will need to have a basic understanding of how equity and funding rounds work or else you are likely to make mistakes. 

For instance as mentioned before, it may seem like a smart idea to sell more equity for a higher sum at the beginning of your business’ life but after 3 years that equity could be worth a lot more than what you gave it away for. Do your research beforehand so you can avoid making any mistakes you might regret.

Investor-ready

How can I feel confident that I am making the best decisions?

If you have not had first hand experience of raising funding then you don’t know what you don’t know and therefore could make decisions you regret and can’t reverse. 

A good way to feel much more confident about the process and make decisions that have a lasting positive impact for yourself and your business is to seek advice at the right time.

Having someone with this first hand experience on your leadership team will help not only you personally as the founder but it would be viewed as a smart move by potential investors. It shows that you make good business decisions which will help give them confidence in choosing you.

Where can I find the right advice for me and my business?

There are a number of options you could consider:

  • Do the research yourself and learn as much as possible. The only thing you won’t be sure of is whether you have covered all the important bases for your own circumstances. You could start your research by watching this video “Grant, Equity and Alternative Funding Optionsthat has experts involved in different areas of fundraising discussing issues you will want to know about. Or this video “From Seed to Series A Funding: The Steps You Need to Take” which is another expert panel discussion.
  • Take on a full time Finance Director. An experienced Finance Director should be able to provide all the advice you need to navigate your way through this process. Taking someone on in this role can be expensive and a long-term commitment which you may not have the resources or desire to invest in yourself. 
  • Take on a part-time Finance Director. A part-time Finance Director is a popular choice for scale-up businesses as this fills the knowledge gap by providing the experience you need without the commitment or the significant price tag. 
  • Use an Advisor. An advisor who has been through the fund raising process before and has experience in your sector too could provide a level of support that would give you the confidence you need.  

One last bit of advice

A good general rule of thumb is to treat a sold share as gone forever. Sometimes you can buy it back but generally the best way to progress is with the view that the investor will be with you until you exit the business. 

This will also inform your decisions about who you want to join you as an investor because you will most likely be working with them up until you sell the business. 

Resources to help you scale-up your business

Through the FREE Growth Diagnostic you can get a personalised report on your business with tips and advice on where you can improve to achieve business growth. 

It may be that your strategic direction needs an evaluation and the FREE downloadable Strategy Toolkit and give you the basis to create a new actionable strategy. 

If your company is looking for funding but needs help on improving your finance strategy then take this FREE Finance Diagnostic for a personalised report. From this you can highlight actions you can take to help improve your finance strategy. 

Getting investor-ready? Read more about:

The Financials

The People

The Pitch

The Marketplace

The Customers

The Plan for Exit

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 six 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.