Raising Business Finance: The Common Misconceptions
Successfully raising finance is not as easy as it might seem.
Here Helena Murphy, Co-Founder and Director of Raising Partners, uncovers the most common misconceptions.
Only those who know investors can secure funding
You don’t need friends in high places in order to secure funding, and if you haven’t done so before, there is no reason why it isn’t achievable for your business. There is an art to raising investment and a specific way to go about it. If you don’t use a raising partner then you can do it independently, but you must put in plenty of research and make an effort to network with both investors and business peers who have gone before you.
All you need is a pitch deck
The countless success stories in the press of founders achieving funding, and shows such as Dragon’s Den, have helped fuel the myth that raising investment is actually easy, and all you need is a pitch deck. A good pitch deck is one of the elements that is necessary, but so is working out which funding platform to use (whether traditional VCs and Angels or more public crowdfunding), fielding difficult investor questions and getting down and dirty with your financial forecasts.
It happens quickly
This is again fuelled by poster boy businesses who claim to have raised in a matter of weeks. In reality, the whole process takes between 4 and 6 months end to end, from first putting together your business plan to pitching to investors and having the money in your bank account. It can be shorter, but rarely, and as I learned the hard way, it often takes much longer than you think! Don’t sell yourself short by not getting organised early on. If you think your business might need finance in the next 6-12 months, you need to start thinking about how you are going to do that now.
You will win investors over with good old-fashioned charisma
If you are asking someone for substantial sums of money, then you must have a serious and rigorous approach. Your proposition needs to be rock solid. This means investing in a good pitch deck, knowing your numbers inside and out and being respectful of an investor’s time and feedback. Charming entrepreneurial energy and passion isn’t enough. You need to ensure you present accurate and realistic numbers and business predictions. If you try to blindside your investors with smoke and mirrors, you’ll soon get caught out and they are primarily concerned with whether they will receive a return.
You just need figures to secure your first round of investment – you can worry about the next rounds later
The first round of investment is often the starting block for future rounds, and it tends to set the basis and tone for investors long term. Instead of a financial forecast to just get you through the first round, you should have five years of forecasts which can be backed up. If you have embellished your position to just secure the first round, the trouble will start when it is clear that your business hasn’t achieved its predicated targets. Even if new investors are approached, new investors are able to speak to those who invested previously and will question why they haven’t invested again. Raising investment is generally a marathon and not a sprint, with most businesses needing to do 2 – 3 rounds of financial raises. If you haven’t hit targets due to an inaccurate initial position you will likely get worse deals and worse valuations or may even not get any further investment. It will come back to haunt you, especially when you are trying to sell.