Sometimes trying to raise capital can be a scary situation. It is not usual that entrepreneurs have an easy ride trying to do this or for that matter enjoyed the process. Yet those that do undertake the endeavor can reach the hundreds. Of these an estimated 25% show an interest from the very start of the transaction then move on to go through the movements to due diligence. A further estimated 10% of these then get a bonafide offer of funds, of which a quarter acutely end in a financial transaction. These estimated figures show the actual guideline odds of being successful.
The process of raising capital, be it debt or equity, involves the following four key processes.
- Perfecting the business plan, offering memoranda, and other company due diligence materials.
- Developing a comprehensive targeted prospective investor list.
- Contacting this list and responding to investor due diligence.
- Negotiating the investment offer.
You must be aware at the very outset of raising capital that there must be total commitment on your behalf and that of your advisory company. Most companies seeking to achieve capital funding give a realistic time frame for successful achievement of one year. You must have the time, resources and money needed for the venture.
An estimated 200 hours of work is required to complete the business plans of a normal transaction. Involved in this will be client discussions, financial audits and carrying out detailed market research to make certain that the opportunity and developments of an all covering financial model, to determine the most effective way to formulate a business plan and producing and checking the strategy. All this and the consultancy company engaged has to produce a proposal of memorandum and a strategy to implement the necessary due diligence material.
After this the next stage of raising capital is the development of a focused prospect investor list. As indicated above completing all the necessary work and documentation a list of roughly 160 pre-qualified investors must be formulated.
The selection of potential investors should be narrowed down to have an interest in the particular market you are involved with.
Relationship building and forming good communication is vital to the success of this list. Normally investing companies get interested in prospects through contacts they already know, referrals are important. CDN Law Firm understand this and are particularly good at building strong bonds with investment companies. So to present qualified deals, we constantly work alongside third parties to investigate their requirements and standards.
Negotiating any deals and prospective transactions also takes an element of time, we have listed below some of the things you might like to bear in mind when starting off on capital investiture.
Introduction – This is key, make your first pitch very clear so there is no ambiguity and is clear.
First Pitch – This is your first attempt, and if you have reached this point you are well ahead of the game.
Due Diligence – Is the network of references being contacted from your potential funding investors? If so, what questions are they being asked? Is there any additional materials or information that you can give? What level is their interest at?
Full Partner Pitch – This is a very advanced stage, basically you have reached the short list. Ensure your target company has given you all the issues he needs clarification on, and be prepared to have the correct answers at the ready. Finally ensure you contact after to see how the presentation went and answer any outstanding questions.
Term Sheet – This stage may take time to get to, but it means the purchasing firm have come to a conclusion and a decision has been made to move forward.
Syndication – If requested a further delay may arise, this is when the investor feels the need for a co-investor. This may because of financing, structure or other variables. This may be a small request but prepare if it is not.
Closing – Depending on the legality and complexity of the deal this could last for a long time, just keep focused on what you are trying to achieve, that is to close the deal.