General advice for raising equity finance

Raising equity investment can be one of the most challenging things an entrepreneur has to do, but also the most rewarding. Whether you need cash to get your start-up off the ground, or you’re looking to expand your established business, these tips should help you if you’re new to fundraising.

 

 

Start early and prepare well

Raising equity capital can feel like a full-time job. It’s often a large distraction from the core business, and it takes at least a few months to complete a deal. But by being well prepared, you can speed up the process and increase your chances of securing the funding you need. It’ll help if you figure out early on what exactly you want from an investor, understand what they’re looking for and the stages they go through to complete an investment, and create a solid business plan.

Be ready to part with equity

Many business owners are reluctant to see a decrease in their ownership percentage. But remember you’re not giving part of your business away; you’re selling it in exchange for money from people who want to help you succeed. Think of it this way: would you rather own 100% of an ant or 70% of an elephant? Equity investment can be the best way to grow your business because you can generally raise a larger amount, and you don’t have to make regular repayments like you would with a loan.

Speak to others who have done it

The fundraising process can often seem daunting, so get as much help and advice as you can. Talk to other business owners who are one or two years ahead of you and have secured investment recently. It’s even better if you have someone in your team with equity experience. It’s also a good idea to appoint a solicitor and accountant with experience in these types of deals. It’ll cost money but their advice will probably save you a lot in the long run.

Be realistic with your valuation

Determining a company’s value isn’t straightforward. There are a variety of methods and no one correct answer. It might be tempting to set your valuation as high as possible, but you should try to avoid this. An overly high valuation may scare investors off or have significant downsides in the future, like making it more difficult to raise further funding rounds. Be realistic and remember that it’s more important to find the right investor than get the highest valuation. Getting professional advice from an accountant or corporate finance firm can help you arrive at a value that is acceptable to both you and the investor.

Keep in mind that it’s about more than money

While getting capital for your business is obviously the main goal of fundraising, there is so much more that investors can offer. Don’t take money for money’s sake or simply go with the investor with the deepest pockets. Find out what else they could bring to your company, including experience, skills, and contacts. Make sure they have a good reputation and ask yourself if you’ll be able to work well with them. The right investor can make a huge difference to the success of your company.

• What's next? Take a look at five questions to ask yourself if you're looking to grow a business through equity.