How to attract funding for international expansion.
As an experienced business owner, you’d like to assume that you’re fully aware of how to approach funding for business growth. However, internationalisation comes with a different set of challenges, risks and rewards compared to growing domestically.
The process of attracting funding to support an international expansion is highly dependent on the stage of the business i.e. how much revenue it has and how much profit (if any) it is generating. Aside from revenue and profit, the majority of businesses will also need to consider the following factors when looking to expand overseas.
1. Prove your model domestically
For an investor, a new market offers opportunity, but also risk. There are many cases of companies being successful in their home markets but not being able to successfully internationalise. One of the biggest risks is the distraction the process brings to the business and management - the worst outcome is not only a failure overseas but also a decline back at home. To combat this risk, you need to reassure investors that the current domestic business is stable and strong, and that overseas opportunity adds to the domestic growth plan rather than detracting from it.
2. Understand your target market
A common mistake for businesses looking to expand internationally is assuming that an existing business model will be replicable overseas. The different customer needs, a greater level of competition, variances in the talent pool, the culture of staff, or simply the different rules and regulations, are all challenges that require the business model to change. Gaining expertise in your target market is crucial for success. You don’t want to be one of the many companies searching for funding to ‘conquer the US’ with no experience of understanding of the market, because investors simply won’t invest!
3. Attract the right investor
Many business owners with plans to expand into a new market, seek to raise the funds in the local currency and therefore need to approach investors located there. To do this, you would need to have a significant presence in the new location, with at least one of the management team based out there full time to attract the relevant investors. Before going ahead, it’s worth questioning the reason why you want to attract these investors – if it’s for expertise, why not hire this in-house and have someone focused on your business full time to provide the best advice?
4. Sell the plan
There is a balance to strike on how prominently you should feature international expansion as part of your investment pitch. Opening up overseas offers both opportunity and risk, which can change the risk/reward profile of who may be interested in investing. If you’re raising funds specifically to expand to a new territory, then an investor would expect a clear and coherent plan. But if international expansion is just a piece of the puzzle for a larger fundraise objective, it requires much less prominence as part of your pitch.
5. Acknowledge the risks
It’s important to understand that expanding your business internationally comes with risks – not only that an overseas operation could fail, but also that the distraction could lead to under performance in the core business back at home. It’s important to understand that taking on equity means that you’re giving away a percentage of your business to an investor. If your business doesn’t grow, then you could be left with less value than you would have if you hadn’t taken on any investment in the first place! On the other hand, funding can provide you with business security to expand overseas without worrying about the bank balance, which can result in a far more valuable business over time.
1. Plan carefully and consider the impact on both domestic and overseas growth.
2. Become an expert in your target market to help make a case for investors.
3. Decide whether a UK or international investor is best suited to your requirements.
4. Create a pitch focusing on how prominent the overseas strategy will be for future growth
5. Understand and weigh up the risks and opportunities for you, and potential investors.