Enterprise Nation founder Emma Jones offers advice on raising funding for your business.
Last week I met an entrepreneur who has run her own business for just under four years. She explained she wanted to raise funds to grow at pace, but wasn't sure how to go about it. Noted here is the advice I offered in the hope it helps anyone else thinking the same.
To raise, or not to raise?
The key question to ask yourself is: can you grow faster by raising investment, than not?
If the answer to this is 'yes', the second question is: are you ready to take on what investment brings which is influence from others in your business?
If you've answered these questions and happy to proceed with a raise, these are your options:
- Bank finance: Banks are lending (see recent announcement from HSBC of £10bn available for SMEs) and they will want to see years of accounts and trading track record on which to base their lending decision
- Crowdfunding: Websites such as Crowdfunder, Crowdcube and Seedrs.com have democratised finance in opening up funding channels to businesses selling product or service who want to raise money and profile
- Peer to peer funding: Sites like Funding Circle can lend to you in hours if investors like what they see
- Angels - high net worth individuals bring money and potential connections to contribute to the business
- All the above require a business plan showing: current turnover, projected revenue, how the money will be spent and what impact this will have, i.e. how will it help revenue grow exponentially so whoever has put the money in gets their return
One added element to securing angel investment is that you have to be registered for the Enterprise Investment Scheme (EIS).
This offers a tax relief to angels and they are highly unlikely to invest without it! You can find out more about that here.
Pitching to angels (and potentially others) will need a pitch deck showing:
- background to business
- competitor landscape
- management team
- current revenue
- why you need the money
- on what will the money be spent
- how much you're prepared to release in the company to raise the money
The last point above requires you putting a valuation on the company now. Valuation is based on a ratio of EBITDA, for example a valuation of 3-4 times EBITDA.
This is the statistical route to calculating valuation but also bear in mind that the value of a company is whatever someone is prepared to pay for it.
Accountants and advisers
Raising money requires the services of a decent accountant or adviser!
Preparing a business plan or pitch deck and getting registered for EIS Relief is eased with support from an expert.
Find one on the Enterprise Nation Marketplace or ICAEW's Business Advice Service. Both allow you to access consultation calls to assess the adviser best suited to your requirement and personality.
If you're a member of Enterprise Nation, we'd love to share your story of success in raising funds. Let us know by emailing email@example.com
Also in the Ask Emma series: