The Business Exchange Bath & Somerset Issue 13: Autumn 2019 | Page 12

SCALE UP FOR GROWTH WITH SHAW & CO You have created an exciting offering that is rapidly winning customers and gaining market traction. To service this growth and capitalise on the market opportunity, you need to grow your team, ramp up marketing and continue developing your product/service. But to do this, you need fresh capital. Funding for growth is a major step in your business lifecycle, and striking the right deal at the right time will be a key step in the future success of your business. Debt versus equity Debt is traditionally available for those businesses with robust cash flows that are able to service interest and capital repayments. Equity however, provides patient capital that can often wait many years until financial returns are expected. The overall cost of equity will be greater than debt, but if the financial freedom it brings allows you to accelerate your business to a place that would not otherwise be attainable, then your overall personal returns should still be beneficial. A multitude of other factors exist when assessing the appropriateness of debt or equity options and the final decision is one that takes careful consideration. Dragons’ Den So you’ve opted to seek equity funding. Dragons Den will often jump to mind. Whilst this is a long way from the reality of securing equity investment, there are some important lessons that can be learned on being prepared for the process of obtaining equity. At Shaw & Co, we only take on a fundraising project if we consider the business and the Management team to be ready and viable for investment. To help you understand what we mean by being investment ready, we have developed a Gate framework. The Gate Process - are you investor ready? 1. Are you solving a problem? Does your business offer a product or service that is solving a genuine problem for customers? We see many Founders with ideas and concepts, but without a defined problem, you are faced with the hugely challenging and risky task of building your own market. 2. Is the market big enough? To deliver attractive returns to investors you need to be operating in a large, preferably growing market that has ample capacity for your growing business. And when we say market size, we mean only your addressable market – that is the market you can realistically reach. 3. Do you know your competitors? It is very rare for a business to have no 0117 325 8510 12 competition. Often the competition might look very different, but if there is a product, process or mindset out there that is preventing a customer spending with you, you should know about it and be able to effectively articulate your value proposition. 4. How will an investor get their money back? Identify the routes that will allow an investor to realise their investment, which in most cases means understanding who might eventually buy your business and why. Keep your research up-to-date and be able to talk about relevant exits. 5. How much do you need and is your valuation expectation realistic? You should have a fully integrated five-year financial model that illustrates how much funding you need, where this will be spent and what it will deliver. Setting the valuation is more of an art than a science at this stage, but there will normally be reference points to help form a reasoned opinion. 6. Do you have a backable team? It’s an old adage, but one that holds true on every investment: the investor is backing the team as much as the product. Is your senior team well-rounded, covering all bases; or if not, what are the plans to rectify any gaps. 7. What’s the plan? You need a business plan that clearly defines and articulates all the key enablers of growth, including sales, marketing, people, product development and more. Presented in summary early on, these plans will be interrogated before anyone parts with their cash. 8. Have you proven the market demand? Beyond initial seed funding, institutional investors want to see evidence of demand from the market. For some, this means annual revenues of around £1m, for others this might mean a large number of users who are beginning to commercialise. In all cases, it is about demonstrating the product- market fit and future adoption. We are always happy talking to business owners to help them understand where in the process they might find themselves, and for those that might not be ready to embark on a funding process just yet, we have our Funding Academy, which has been expertly designed to help businesses develop towards an equity fundraise. [email protected] THE BUSINESS EXCHANGE 2019 Closing the Deal It’s a time-intensive period and one of the great benefits of working with an advisory business is ensuring the Founder doesn’t take their eye off the business at this critical time. So what does the transaction look like? As with most things in life, preparation is key. Preparing a robust financial model and credible business plan, that underpins an articulate, well-designed deck is a fundamental first stage of raising investment. It’s then about market-making. Go wide or go narrow, we’ll help decide who to approach and how. Once you have interest, it’s about driving the best deal for you and the business, which isn’t just about valuation. With term sheets signed, we become project managers and deal fixers, driving all stakeholders to the finish line, holding the investor to terms and navigating any speed bumps on the journey. www.shawllp.co.uk Why work with Shaw & Co? We have completed transactions of all sizes and complexities and know what to look out for on the road ahead. We choose our clients carefully and then put our full weight of experience and reputation behind delivering you a successful transaction. To find out more, please get in touch using the details below.