Raising venture capital for private companies in any market is difficult. Throw in the current global financial crisis and things become nigh on impossible for capital seekers. It is truly an environment where only the best deals will prevail.
Funding for private companies has dried up mainly because most investors have lost money and are “licking their wounds”. They are adverse to investing into anything new, let alone a small private company or speculative start up. Unfortunately, most of those seeking capital are private, and/or start-ups.
No matter the markets, or investor appetite, there is a never-ending capital demand for new or expanding companies. And make no mistake – there is money available. It has just become much harder to find.
If you are one of the companies who seeks capital, here are some tips that will greatly boost your chances of raising funds:
Allow sufficient time
The time taken to raise capital has doubled or even tripled. So allow at least six to nine months to complete your capital raising. Yes it can be done quicker, but you cannot rely on this. Don’t make the mistake many others have made of waiting until you are 30 days from bankruptcy before you start looking for money. You will most certainly fail.
Make sure your offer is the best it can be. Ensure you have a good advisor assisting you with the structuring of your capital raising, and a good Information Memorandum and that clearly explains your opportunity.
Now that you are prepared, you must get your offer in front of as many potential investors as possible. Raising capital in the current market is, to a large extent, a numbers game. The other reason to show your offer to as many people as possible is because you never know who they know. They could refer your offer to one of their friends who is more suited to invest in your offer.
Allocate a budget
There is always a cost when it comes to raising capital. You must budget for advisory, legal, accounting fees, creation of your Information Memorandum and also the promotion of your Capital Raising Offer. When you are deciding how much money you are looking to raise, these fees need to be taken into account. Raising capital is not free for the company seeking the capital, as many people seem to assume.
When companies approach with this mindset, it is an obvious sign they are not prepared.
In my next post, I will provide you with some additional aspects to consider, along with some compliance issues to take into consideration.
Steve Torso is a founder of IMI Trust, which assists SMEs with strategic marketing, business development strategies, web development and capital raising. He is also the founder of Wholesale Investor Pty Ltd, a high-end subscription-based magazine and website providing wholesale, profession and institutional investors with access to leading private companies.
Photo: Brooks Elliot (flickr)