Fundraising from the investor community can be transformational – raising the necessary capital can catapult the growth of your business in a number of ways, whether its organic investment in sales and marketing, securing funding for new product development or enabling new market entry.
We partnered with Orrick earlier on this year for the Raising Growth Capital: Perspectives from the US and Europe event to bring you a unique opportunity to compare the outlook from across the pond with that of investors within Europe. The speakers at the event included: Reshma Kalimi Casale at Stripes Group, Jan Rutherford at SEP and Tony Pepper at Egress Software Technologies who discussed what investors look for, their role and what’s important to have at your fingertips when presenting your business. There’s no hard and fast rule as to how to maximise the success of a fundraise or secure the best valuation but here are some best practices that we recommend adopting in the run-up to a raise.
Know your KPI’s
If you’re a B2B software business, you need to know: your ARR – how it builds and fundamentally, your churn statistics: on a pound/dollar/euro basis, how much customer revenue have you lost during the last year (“gross churn”) and what is this figure net of any revenue upsell/customer expansion (“net churn”). You also need to know your customer LTV (“lifetime value”) and CAC (“customer acquisition costs”) and what drives your gross profit (“gross margin”). These are numbers that are critical to scale potential that investors will expect you to be tracking in detail and have ready at your fingertips.
If you’re a B2C business, you need to understand your customer cohort, including the trends that point to repeat customer purchases, your LTV/CAC, how your take-rate compares to your competitors and how you can increase your gross margin.
Know your competitors and prove differentiation
One of the first questions you’ll get asked when raising capital is who you compete with and how you differ from your competitors. This is a critical question for investors who want to understand how you sit within the ecosystem or market. Speak to product differentiation, emphasise performance metrics (if you have them) and understand the reasons behind why you do things a certain way will drive greater revenue and growth.
Use your network
Speak to friends, other founders and understand how they have built their business and raised funds. All investors are different in terms of what they bring to the table and understanding how your counterparts have prioritised and made decisions for their business will give you some solid practical insight. They may be able to introduce you to funds and advisors to help you on the journey.
Hire a good CFO
A seasoned CFO will be instrumental to you during the fundraise process (investors look at the financial metrics of a business in a significant amount of detail) and will help you build a model for growth that will get investors excited. They’ll also be crucial as you scale by understanding how levers of investment in your business will drive growth and margin. An operationally focused CFO will be able to look internally at managing the business so you can focus externally on new business lines and growth strategies.
The US venture and growth capital funds, with their strong dollar investment pots are increasingly seeking investee companies outside of their domestic market. If you have ambitions to grow in the US, these funds typically come to the table with money and contacts which could prove invaluable. The same goes for funds with an APAC heritage.
Think about what’s important to you
Along the same lines, think about what you really want to achieve from raising capital. Do you only want the money? Do you want some experienced operators and investors on your board advising you as you pursue your growth strategy? Do you want to access a new market and want a fund that can help you on the ground? Funds all offer something different – make sure you ask each fund about their ‘value-add’ beyond the initial cash investment.
Hire a high-quality advisor with global reach
Fundraising processes are time-consuming and having the right partner alongside you can add value in a lot of ways.
A high quality advisor will work with you to craft the very best equity story for the business, positioning and quantifying the ‘total addressable market’ opportunity and highlighting the KPI’s and messages that investors need to see.
It’s important to find an advisor who can connect you globally to the very best investors across the world, maximising your potential partner options and one who has experience in driving a competitive and well-prepared process that will maximise competitive tension and valuation.
The right advisor for you will recognise that you’re leading a fast-growth business that needs to keep performing well and delivering to the growth plan – on a practical note, they’ll be able to take a lot of the process work off of you to ensure you have the headspace and time to focus on the business.
If you are considering raising capital or the next step in your company’s development, we’d love to have an informal discussion with you so please do get in touch.