Lee Nicolaou, digital marketing agent at Business Agent, shares his insights and expertise for successfully sourcing capital
Raising finance for your business can be a stressful process and it’s not as easy as what it once was.
With banks’ lending to businesses less, it can be a struggle to reach the growth and potential you’re looking for.
With the alternative finance market growing business owners now have another avenue to try.
Equity crowdfunding for businesses has exploded and has helped to fund successful enterprises such as Brewdog and Mondo Bank.
It can be a fairly long process and will require more time than a standard business loan, but I’m here to share what you should expect and where to start.
First things first, you need a clear plan. What are you going to achieve? How you are going to achieve it? Who is going to achieve it?
All of these questions need to be addressed in a well-structured business plan.
Firstly, what key pieces of information do you need to inclde?
Fifty-page documents are not always the best route to take. Investors and equity crowdfunding platforms can be turned off by this and it becomes, well just a bit boring.
You need to be short, snappy and smart about what is included in your business plan. Think about what you are writing and some it up in the most efficient, yet informative way.
You should be including you vision & mission, details of the product and service you are offering and why this differs from what is already available in the market.
Next, the management team, this is very important, how are they qualified to guide the business and what past experiences do they have that will drive the business forward.
Cash flow forecasts, what you are excepting from the business and how much will it make once you have received investment – be realistic here!
How are you going to market the product? Competitor analysis is important.
Don’t be afraid to be innovative with your plan, try and stand out, give it some sort of edge, after all you are trying to attract investors to invest in YOU, so what separates you?
Equity Offered & Valuation
This can be a tough one to figure out and will require a lot of thought. You have to consider how much of your business you are willing to give away.
As well as that, if you are planning on multiple funding rounds; you need to save some equity for the future.
Firstly, you will need to get your valuation straight; if you are going to offer 25% of your business for £250,000 then you have valued your business at £1 million.
Is that a reasonable and justified sum?
You cannot simply pick a value you wish to raise and only offer a small percentage of equity, it needs to add up and valuing your business will play a huge part in what you can look to raise.
Remember, your figures have to be justified.
When valuing your business you need to consider the value of the assets, the cash in the business, discounted cash flow for future projections, the valuations within the industry, the current profit & loss, the revenue and the projected sales as well as the value in your existing staff.
Again, you need to be realistic, valuing yourself too high will make investors less likely to invest as they will be expecting a higher share for their cash.
Be reasonable but also be comfortable with the amount of equity you are giving away.
You’re excited about your business right?
You trust that it’s a great idea and you believe in it, now it’s time to make everyone else feel the same.
Potential investors need to be as excited as you, after all they you are trying to get them to invest in your business!
A good place to start is a video to highlight your strengths as a business. A short video to explain what it’s all about should be on your checklist. Make it fun, short and sweet, keep viewers engaged and interested.
Also, get yourself online and on social media. Showcase your work across Twitter, Facebook and Instagram and engage with your customers and potential users.
It’s a great (and FREE) marketing tool to get your business known and visible, and with the option for a paid ad service you can increase your marketing even more.
Create a build leading up to your funding round; create some noise around it and why it’s so exciting and exclusive.
The equity crowdfunding market has grown at such a huge rate and there are now a number of great platforms to choose from.
When it comes to picking a platform to raise with, look at what suits you the best. By this I mean look at the charges, what percentage the platform will charge from your raise and do they also take a share in your business.
Do your research, consider the types of businesses they have previously funded and what type of investors they are likely to have.
Try and find a platform that suits your needs and also is likely to be the most relevant for your business.
One of the most important things is to be clear. If your business is confusing or your plans are confusing, you are going to lose interest.
You need to ensure that your primary business function is understandable and that what you’re looking for and how you plan to reach the business goals are clear and mapped out.
When it comes to your exit plan you should be straight forward and honest, how are investors going to see a return?
Most importantly, have fun with it, it’s an exciting opportunity for your business and it’s certainly one of the most fun ways to raise cash!
Business Agent is an alternative finance marketplace for investors and entrepreneurs to invest, borrow, lend and raise finance.