Most people find the prospect of having to raise capital a rather daunting process. One hardly ever hears a successful entrepreneur crowing about how delightful or even easy, the process has been for him. Yet, large numbers of them do successfully manage to raise capital every year. Even when a transaction has been offered to the market the response may not be exciting. Normally only about a quarter of potential investors who do show any initial interest, actually progress to the point of initiating a detailed company due diligence process. Around 10% of these make bona fide offers of funds and even fewer actually complete an investment transaction, about 0.5%. Given these odds against a successful funds injection, are there any steps that can be taken to increase the chances of securing investment?
The financing industry expects a structured approach to the raising of capital, whether by equity or debt. You will need to be precise in tracking and satisfying the following key processes:
- The creation and updating of business plans.
- The definition and offering of a memorandum of understanding and other due diligence materials.
- The refining of a targeted list of prospective investors and consultants
- The contacting of everyone and then refining of the contents of the list, as appropriate.
- Then focusing on the potential investors who have showing interest.
- The delivery of offers and materials for due diligence.
- The presentation of details of the investment opportunity to those showing interest.
- Selecting a qualified sub-set of these for negotiations about any possible investment offers.
We insist that our clients understand the time commitment on their part and the effort required of us in such an investment exercise. Companies seeking any type of financing will come to expect a time scale, from implementation to close and receipt of funds, of between 9 months and 12 months, at the very least. It is imperative that you budget this time plus the management and financial resources necessary for success. At the same time you must address the distraction this will cause and the continuing impact on your continuing business. Industry norms show that the time commitment can easily reach 500 to 1,000 work hours.