The first question should always be do you actually need to raise finance as this is not the best route for every business. Some businesses can scale perfectly well by ploughing back any profit and financing expansion from cash flow. Others that are looking to scale more quickly, and especially those in the tech sector, rapidly moving markets, or that are capital intensive in some way, are those that will normally need to raise substantial funds.
Having decided that you do need to raise finance then leads to a whole lot more questions. How much do you need to raise and what for? How exactly will it be spent and over what period of time? When do you need to receive the funds by and how long a runway will that then give you? Should it be debt or grant in some form or should it be equity? If it needs to be equity, then where is the best place to raise it and at what valuation? Is it beneficial to have SEIS/EIS Advance Assurance and indeed what even is that, and is your business eligible? And so many more questions.
Given that the above are just some of the more obvious questions, it is easy to see why the topic is one that is such a focus of attention. And it is also easy to see why the topic of raising finance can take so much attention.
Should the funding that you need be debt or equity? Debt can come in the form of traditional bank loans or overdrafts, but these are typically only available to companies that have been trading for three years. Other debt finance might be in the form of asset finance, leasing, cash flow finance, invoice discounting, and many more and may well be easier to access for an early stage business. But most only provide limited amounts which may assist with day-to-day trade but will not provide enough funding to scale quickly.
As such, many businesses decide to raise equity, but deciding upon how much to raise and at what valuation is, again, outside the experience of many founders. The earlier you raise finance, the lower the valuation of your business will be, and so the larger the percentage of the business will need to be sold to raise any given amount of money. Getting this balance right is crucial as it is better to come back and raise a further amount later at a higher valuation, but this must be balanced against the fact that raising finance is very time consuming and diverts attention from working directly on the business itself.
Equally, finding and working with the right partner can literally make or break your business as it is a long-term relationship and needs to work well. Deciding upon whether the funding is best raised from business angels, crowdfunding, or venture capital firms depends on many things and, yet again, getting this right is crucial to the chances of success of the fundraising and your entire business.
Getting so much right is not easy and any one false step can reduce the chances of success or, at the very least delay, progress. The best advice then is to think hard about what is required, do the research, work with the right partners, and raise funds from the right sources. By doing all of that your business will be most likely to be able to scale as required.
29th March 2022
in British English