By Garry Pinch
Business Services Director, Accounting Professionals
As a mentor to Start-ups and Scale-ups I regularly assist with strategies and campaigns to raise start up capital.
Unfortunately, in my experience, 90% of businesses don’t allow enough time to raise start up capital. As a minimum, you need to start your campaign at least six months before you require your capital. Rarely are investment decisions made randomly without proper due diligence.
Rather than reaching out to investors at the last minute, when your capital is required, it is far more effective to invite investors on board well before you need their money. Take them on your journey early. Connect and build the relationship, even years before you need the capital.
You might also be interested in watching (Video: 2mins): What makes a successful start up?
How do you do this? Consider these four vital components for your capital raising strategy:
- Create your investor network – When it comes to raising capital, there’s plenty of options. Contact angel investors, venture capitalists, private equity, family offices and equity funds. You’ll find them with a quick online search but make sure you do your due diligence before getting in touch with them. Key questions you should answer include:
- What do they do?
- How do they do it?
- What are their investment criteria?
- Who is the best contact?
- Even ask whether you could keep them updated on your progress – remember to obtain an email contact.
- Nurture your network – Provide your network with quarterly updates on your progress. This can be done by email and/or video but keep it brief, one or two pages at most. Make your briefing interesting by including photos and graphics. It’s also a good idea to include how you are tracking against your project milestones, including both your successes and failures.
Why your failures? Investors need to see you are resilient and how you tackle adversity. Tracking to milestones also highlights to investors you have a plan and where you are up to in that plan.
Investors also have networks, so keeping investors informed also creates an opportunity to strengthen your network.
- Maturity of your network – By playing the long game, your investors will hopefully have trust and confidence in you and be ready to invest when you need the capital, some may have already enquired about investment.
The informing, educating and due diligence processes of capital raising will be far less demanding when you have engaged your investors earlier.
- Post Investment – Even after you have acquired funding from your investors it pays to maintain regular updates with shareholders and your investment network.
Confidential shareholder briefings, quarterly, bi-annually or annually, depending on the circumstances, are also critical to maturing the shareholder relationship.
Start-ups need to actively pursue transparency with early stage investors – it is best to assume that many angels don’t fully understand that it is their capital being spent and in the worst-case scenario they may not get it back. Your investors or shareholders should not be surprised at any stage of the process.
Access to capital for start-ups has tightened over the last two years with the decline in government support for start-ups, angel investors not feeling as wealthy due to the decline in property markets. Venture capitalists and private equity groups are also favouring post revenue start-ups as the Australian start-up marketplace matures.
So, it has never been more important than ever, to start engaging with investors now. Need help with your capital raising strategy? Get in touch