Is now the right time for your business to raise finance?
If you're an entrepreneur, you have more than likely already considered raising finance. You may be looking to grow and have started to weigh up your options, or have heard the stories of what seems to be unknown companies raising hundreds of millions of pounds overnight.
However, there is a reason why these stories make the news – it is rare! Whether, when and how much to raise is unique to each fundraise and there is no set rule book to follow for the best results. It is about finding the right fit for your business.
Use our five considerations below as the framework to establish the position of your business and whether now is the right time for you to raise finance.
1. Is opportunity knocking?
If there is a newly identified need, want or demand trend in your market, this could be the right time to raise finance. A fundraise will enable you to invest in new products, staff or marketing to take advantage of this trend. Stay ahead of the curve and one-step in front of you competitors by having the resources ready to invest and capitalise on these opportunities.
On the other hand, if your market is small this can be a limiter to growth and will be a concern for investors. In this situation, you should look to sell your product in a new market or focus on making your business as attractive as possible before a future exit.
2. How mature is your business?
If you are an early-stage business that is burning cash fast, then raising finance is an obvious option to provide runway and help keep the lights on. There are some scenarios when growing fast at the expense of profit is worthwhile, however addressing the cost structure of your business to breakeven or generate a profit will remove the urgency to raise capital, allowing you to negotiate and meet more investors to get the best possible deal.
If your business is established and profitable, considering whether to raise finance is a more complex decision due to the variety of growth options available to you. Each option comes with both risks and rewards and the biggest factor for mature businesses is timing. Raising finance can act as the catalyst to drive you towards an exit, which will work for you if your aim is to generate a greater return for shareholders. However, if you are running your business to maintain your lifestyle rather than for growth, a fundraise is not for you.
3. Do you already know the ropes?
If you have experienced the fundraising process before, you will have a greater understanding of the changes and impact this will have on your business and therefore be better prepared for your second round.
If you have not yet experienced the process, raising finance could be the driving force you need to take your business to the next level. However, be aware of the professionalization that some businesses need to undergo as part of taking on investment. If your business has never taken on external capital before, seeking professional advice is highly recommended.
4. What’s holding you back?
Understanding what is stunting your growth will give you an idea of the impact raising finance will have on your business. If you already have cash to hand, will more cash sat in the bank really make a difference? However, if your business is struggling to invest in marketing to attract new customers, recruiting key talent or funding the long working capital cycle, now might be the best time to consider a fundraise. Understanding the limiting factors can also help you to identify what type of funding is best suited to your business.
5. The end goal
This is the single most important point to consider. Every business, founder and shareholder may have different priorities; but understanding each of these aims is key to finding a route to that end goal. Some may be focussed on finances, others on changing the world. You may be willing to risk it all to become the next Google, or your priority may be to protect shareholder value at all costs. Ultimately, understanding your businesses’ risk profile will help you determine if now is the right time for you to raise finance.
These top tips will have provided you with some direction as to whether a fundraise is right for you, but there are many more factors to consider.
Download our free interactive guide and click through to submit your answers to the eight key fundraising questions. Add up your score at the end to find out if now is the right time for your business to raise finance. If you think it is the right time for your business, contact us to kick-start the process with the knowledge that your business is in the best position possible. If it is not your time just yet, we can advise you on the steps to take when preparing your business for organic growth or a fundraise in future.