27 April 18
Mark's lessons on capital raising:
- Make sure material arrangements are supported by appropriate documentation;
- Be flexible on how the investment might be made (equity, convertible note, joint venture, “farm in” …);
- Have a well balanced team with relevant experience and skills related to the business;
- Understand current business performance, profitability and customer acquisition costs;
- Assumptions for forecasts should be well tested and be able to be supported;
- Be realistic on valuations. Investors will only pay for “fair value”. The gap between the balance sheet and the valuation is “good will”.
- Maintain good communications with your “followers” (potential investors) and stakeholders including your advisors. Fast growing businesses can change quickly.
- Put capital raising plans in place early – don’t wait until you need the capital as it takes time to raise capital;
- Answer prospective investor queries promptly and provide transparency around your operations. Investors are not only assessing the opportunity but the management’s ability to execute.
- Make sure the company is solvent and the “burn rate” is sustainable;
- Channels to market are critical;
- Accounts should be up-to-date and accurate;
- Don’t second guess who may or may not invest, contact as many potential investors as possible;
- Balance sheets should be “clean”. Loans from related parties should converted to equity if possible.
- Founders should not have loans to the Company and also take shares for “sweat equity” (no double dipping);
- Take advice around the capital raising process;
- Capital raising is a “team sport”, make sure all parties are engaged and active;
- Corporate structures should allow investors to have direct access to the intellectual property;
- Don’t over invest in the product, you also need to sell it;
- Don’t be prescriptive on how the raise should be conducted – the strategy should meet the Company’s capital needs (ie. working capital or a capex milestone);
- Don’t just back “one horse”. Curate investors or acquirers so multiple parties are pursuing the opportunity. Many deals do not complete.
- Take the money.
- Reputations of the parties are important.
Contact us to discuss your capital raising needs:
phone +61 7 160 2840 or email email@example.com