And all of that is true even in the good years. But2023 is not an easy year to be raising finance to scale as the global economy fights with uncertainty on many fronts and steep price rises in energy prices make it more difficult for business and encourage many funders to wait and see what happens.
It is a truism in any year that investors will tell you that there are not enough good businesses for them to invest in, whilst at the same time businesses are telling you that there are not enough investors or providers of other finance that are actively looking to provide finance.
So, how can both these statements be true? In fact, quite easily, as many of the businesses that seek funds to scale are simply not ready to enter into such discussions. Often the business itself is simply not a viable business for any lender or investor to take seriously or, the business is sound but has simply not prepared itself properly and is not fully investment ready.
Whilst many different forms of debt are possible, many of these are either simply not available or very restricted in size to early-stage businesses. As such, most founders that are looking to scale are restricted to looking for equity funding. Inevitably, investors will expect to do detailed due diligence as any possible investment progresses but to even get to that stage will mean ensuring that your business is fully investment ready. Given that this year investors are being even more careful in their investments then over the last few years, this is even more true at the moment.
This starts by telling your story in the best way. Your business may be the best business but unless you are able to convey this to others then you will never get funding. So just how do you ensure that your business is fully investment ready?
Vital steps to getting funding to scale in 2023:
· Research – Ensure that you have thoroughly researched the market and are aware of any competition. What makes your product or service different?
· Business Plan – Only by going through the exercise of producing a business plan will you have properly been able to consider all of the constituent parts of your business. From revenue streams, costs, supply chains, staffing, premises, and so much more.
· Financial Forecasts – Ensure that your financial forecasts are well thought through and detailed, and don’t just show generic growth. The assumptions used must be realistic and defendable and will be reflected properly in the forecasts.
· Pitch Deck – This is often the first document that potential investors will see and it must be right. It must concisely summarise the problem, your solution, why you, your team and any advisory board, the amount you want to raise and how you will spend the money, headline financial forecasts, and contact details. It needs to grab the reader’s attention and make them want to know more, as otherwise there will be no opportunity to develop discussions further.
· Advisory Board – Investors like to see an Advisory Board that provides additional knowledge and experience and is there to support the founders and senior management team.
· Systems and Procedures – All systems and procedures need to be properly in place to ensure the safe and smooth running of the business.
· Contracts – Ensure that all contracts with any co-founders, staff, premises, suppliers, and all other bodies are in place.
· Sales and Marketing – Ensure that you have a well thought out, costed, and documented, sales and marketing strategy that is appropriate for your growth plans.
· Data Room – Gather all the above, together with all statutory documents such as certificate of incorporation and memorandum and articles of association, into one place so that any potential investor can be given access to the file or it is easy for you to access and send on request.
Valuations are always open to negotiation and there is no doubt that many valuations are lower in 2023 than they have been in the previous few years; especially in the tech and other sectors where they had become rather ambitious. Valuing an early-stage business is more of an art than a science and many different methods can be used. Typically, a VC will value your business at a lower price than an angel or if crowdfunding, but before starting any discussions you must be clear in your mind how much you seek to raise and what level of equity you are prepared to sell.
Getting funding to scale in 2023 is still possible for the right business that is presented in the right way but it is more important than ever to ensure that your business is properly investment ready and that you tell your story in the best possible way.
2nd May 2023
Read my original article for Startups Magazine at https://library.myebook.com/electronicspecifier/startups-magazine-march-april-2023-1/4794/#page/18
in British English