International expansion is one of the most common reasons why a business would look to source funding to invest into new territories that can replicate the UK model. There are some key factors to consider when looking to raise finance for expanding overseas.
1. Prove your model domestically
In short, if a business cannot prove its model at home, why will it be able to overseas? Therefore being able to demonstrate a model that could be replicated abroad is important for an investors. But even for domestically successful businesses 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. In the worst cases the domestic business can suffer due to lack of management focus as attention is turned to new markets. Investors will be conscious of this so you will 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. You will need to show an investor you understand not only the opportunities but also the risks over opening overseas, and how you will mitigate these risks? Will local management/staff move to set up the office? Will you hire local expertise? How will you maintain culture and communication? These are some of the questions you will need to be able to answer.
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? Investors often see many of the pitfalls from businesses repeatedly but our view is often that you should raise finance and buy expertise rather than raising to get investors on board purely for expertise. Finally when talking finance, often entrepreneurs think of equity, but debt can also provide a viable and cheap option to growth.
4. Sell the plan
Think about the pitch. Are you raising purely to expand overseas, or is international expansion just one of many strings in the bow that will drive growth? 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 – as mentioned, 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. Understanding that taking on equity means that you’re giving away a percentage of your business to an investor is important too. 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. But for most businesses funding can provide the business with security to expand overseas, accelerate growth, which often results in a far more valuable business over time. Ultimately the existing shareholders should end up with more valuable stakes in the business.
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 what type of investor is right for your business.
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.