What should founders consider when fundraising?
05 November 2020
The world of fundraising is complex, and we are often asked by founders about the critical factors they need to consider when raising capital.
PwC | Raise Ventures works with high-growth companies seeking investment of £1-30m to scale up their businesses and achieve their growth aspirations. Below, I set out some key questions from our experience that founders must ask themselves before fundraising.
1) What type of investor will help my business achieve its goals?
When taking on investment, careful considerations must be given to potential partners. Aspirations need to be well-matched, with the investor being bought into the strategy and vision of the business. There is also a wide variety of return profile investors will seek - ranging from three to more than ten times return on investment, with some having a more patient approach to capital than others.
Additionally, investors are often experienced in helping emerging businesses grow and can provide further value-adds (such as access to networks) beyond the initial capital injection. As such, founders need to consider what else they would seek from a partnership.
2) How much should I raise, and when is the right time to do so?
Founders are unlikely to secure investment that is disproportionate to the maturity of the business, so have to be realistic about how much they can raise. The use of funds is also a key consideration: is the business looking to develop a minimum viable product, or has it achieved product-market fit and now looking to scale up growth? Investors will have different expectations based on your maturity - the more mature a business, the less likely investors will want to spend money developing the product, instead looking for rapid growth.
Founders could be forgiven the desire to raise as much as possible in a short space of time. However, this could have serious implications for the future - if the business hasn’t reached the right level of maturity relative to the investment, the valuation achieved may be below market levels. Conversely, not raising enough capital would put the business under pressure to achieve its targets without the sufficient time and resources required. Typically, a fundraise should give 18-24 months of cash runway, enabling the business to hit its objectives over that timeframe - as long as they have been set realistically and are achievable.
3) How will I manage the investment process?
Raising capital requires bandwidth along with careful planning and resourcing - it is almost a full-time job itself, given how competitive securing investment can be. There are four key stages founders must navigate:
- Building a high-quality suite of investor documents: investors will expect a premium pitch deck, financial model and investor business plan when initially analysing the opportunity.
- Accessing introductions to the right investors: securing investment at this stage is similar to a matchmaking process - given the high levels of competition in the space, knowing who to access and how to get in front of them is key.
- Managing the due diligence process: investors require access to a data room to validate the investment opportunity, looking through information such as historic financials, sales reports and other key information.
- Agreeing the final terms of the investment: negotiating the final terms of the investment can be a difficult and time-consuming exercise in itself. Without the right expertise and support, founders may not achieve investment that is on the best possible terms for themselves and the business as a whole.
Get in touch for help with fundraising
Navigating the world of fundraising for emerging businesses is complex, but ultimately can lead to the achievement of personal and professional aspirations. Should you wish to discuss any of the above with the PwC | Raise Ventures team, please do get in touch.