Think beyond high street lenders and be prepared to answer hard questions, says Kevin Ronaldson of Clarus Fortior
Fundraising for any business can be a challenge – and this is particularly true for SMEs. Although there is no single approach that can guarantee success, the reality is that all funders and investors are looking for the same traits: passion, belief, dedication and a great idea that can be articulated quickly and fluently.
Whether you’re looking for start-up finance, scaled investment, development backing or funding for acquisitions, here are some useful pointers to improve your chances of success.
Look beyond the banks
It’s vital to research all the possible funding options and understand these in detail before you make any approach about fundraising. For example, there’s no point in seeking investment for your start-up by approaching funders who do not invest in start-ups or your chosen marketplace. Instead, focus on those that best fit your criteria.
I also find that business owners tend to overlook certain funding avenues. Crowdfunding, angel investing or small family offices could all have relevance to your business.
Considering the heavily regulated commercial lending environment in the UK, I also think that SMEs looking for development funding would be wise to look beyond the banks.
Know your business inside-out
The quality, fluency and passion of your pitch will be vital, but this should be balanced with a strong and concise grasp of the financial details. Your pitch should be tailored for the consideration of a “cold” and time-poor audience.
It might be useful to run a dress rehearsal that covers all the most challenging questions, with a trusted peer or mentor playing the role of devil’s advocate.
It’s easy to find yourself stumbling around the subject matter – but if you know the talking points in detail, you should be able to assume an air of knowledge and ownership.
Always provide hard evidence
The perfect pitch will cover all the key details that are most relevant to investors. For example, a section on risk and other potential downsides will show that you are not just an eternal optimist.
Other details to include will be market comparisons, a well-evidenced estimate of potential size, details about your leadership team and any opportunities for the investors’ exit.
The very worst tumbleweed moments come when an investor asks how much you are prepared to invest into this venture – so make sure you have prepared a clear and honest answer.
Keep your business plan current
Failing to provide a clear three-year business plan indicates that you do not have a clear plan of how the investment will be spent. If you’re spending my money as an investor, I need evidence of how it will help my investment to grow in value. We’re looking for guarantees about how your idea can be monetised.
As a rule of thumb, I recommend starting the fundraising process at least six months before you’ll need the money to ensure you don’t run out of time. This process will be a lot easier if your three-year business plan is kept up to date.
Scale up to beat competition
As your business grows, you’ll want to move towards a smaller number of large investors. For SMEs, you should consider groups of angel investors, wealthy individuals and boutique private equity groups.
Funding allows you to better control your key decisions around marketing, technology and acquisitions, which in turn means you’re better placed to steal the march on competitors who may not have funding in place.
Kevin Ronaldson is an entrepreneur and expert in fundraising. He previously built two financial services from scratch to a combined annual turnover of £100 million, with funds under management of more than £3 billion. Kevin is a business mentor who recently established the business growth consultancy Clarus Fortior