You have an earth-shattering business idea. You’re convinced it will stir up the marketplace. But you can’t find a banker, venture capitalist or angel to invest in the concept. Who’s to blame? The economy, the legal system, the bankers, the Guptas? The truth is it’s probably your fault for not presenting funders with a bankable business; it’s your dream in the form of a gambling proposal.
In the words of Gary Player: “The harder you work, the luckier you get”. To get “lucky” at raising funds, you have to work incredibly hard at getting your business funding ready.
10 Tips to get you started
Here are some simple steps to help you get your business ready for and worthy
1.Write your own business plan
A business plan is not a funding request. It should outline your strategy, focus, growth path, key performance indicators and risk management style. It is a working document that must become part of your daily business life. Appointing someone to write you a business plan completely mitigates the very purpose of the document. That said, there is nothing wrong with obtaining expert advice on certain critical areas, in fact it is a good idea.
Money follows money, and investors want to invest in a scalable concept. So you need to show them how you plan to grow. Even if you can’t sell your mind-blowing invention as yet, show business acumen by either selling related products or by starting the patent registration process and running market workshops. They want to see some kind of evidence that you’ve got a real business in the making.
3. Invest in yourself
If you lack financial knowledge, take a course. If you don’t know how to sell, take a course. Show potential investors that you are willing to learn what is needed to make better decisions and build a successful business.
4. Stay on top of admin
Up-to-date financial records, current financial statements and personnel records are all required during the due diligence process. It’s a hurdle many small business owners fail to clear. Comprehensive, referenceable records will not only make the due diligence quicker and less painful, but they also show that you are serious about managing and growing your business. If you don’t respect your business enough to stay on top of the necessary admin, how can you expect an investor to take you seriously?
“Doing all the hard yards to present your business in its best possible light, as well as staying humble, will go a long way towards getting you the funding you need.”
5. Communicate well
Great communication skills are crucial when introducing your product or service to the market and encouraging your clients to purchase. Your ability to communicate is also a key factor in gaining the trust of potential investors. They want to know that you will communicate all news – good and bad – honestly and consistently, whether to them or your customers.
6. Know your market
Your brother-in-law and six braai buddies may think your idea is earth shattering, but this a tiny sample – and they are probably too polite to critique your concept. Investors require more than this, they want proof that you have listened to consumers and have in-depth knowledge of their needs and wants. Joining related associations, supplier groups and going to networking events, are all great ways of finding out more about your potential market. Importantly, you will be required to provide proof that you have done your market research.
7. Build a team
For a business to grow, you have to have a strong and dynamic team. Illustrate your ability to build teams, even if it was in past businesses. If you are pre-funding, develop a personal profile that shows the behavioural traits of the next line of recruitment, details your induction processes, and shows the investor that you can build and lead a strong team.
8. Establish a board
All corporates have boards. Why? Because as a business owner you can’t be everything to everyone. You need strong people to advise and assist you. If your company is too small for a board, establish a team of advisors who can assist you during once a month or quarterly strategy meetings. A typical advisory board would consist of your accountant, your attorney, a business mentor (someone with experience in the industry) and business coach. Although the exact make-up will depend on your industry and exact requirements.
9. Know your real capital requirements
Don’t make the mistake of expecting your fund to figure out your real capital requirement. An over-funded business will struggle to repay its investors, and an under-funded business will constantly need capital and run short. Understanding your real capital requirement to move to the next phase is crucial.
10. Fund only the necessities
Investors aren’t there to fund your lifestyle, or your need to keep up with the Jones’s. Don’t plan to buy a factory, when you can rent one. Don’t ask for funding for a new Navara when a demo NP 300 would do. Don’t include massive salaries for you, your wife and the family dog. You need to demonstrate the ability to utilise your investors’ capital frugally and effectively. A penny saved is a penny earnt.