According to the FT, the over-50s are THE new start-up generation – now accounting for 43% of all new businesses. With decades of experience behind them, their concepts and launches can offer an attractive proposition to investors, and as we live longer and expect more from our second lives, the 50+ entrepreneurs are choosing to pursue new dreams like never before.
Planning on the back of a napkin is a time-honoured way to get started with your idea – and empires have been kickstarted this way. But ultimately, some kind of funding is a good way to get things off the ground, and for that you’re going to need a bit more planning. If you’re thinking about raising some money for your new enterprise, money guru Clive Hyman has some tips.
1: Decide on equity or debt – or a combination
Equity has massive implications for dilution – so don’t ignore the debt option. This doesn’t affect equity and can be a quicker and easier source of funds. There are now plenty of debt providers lending money, depending on the age of your business – but don’t expect money from the traditional banks. For example, if your business is already two years old, try Funding Circle.
A combination of debt and equity is often the ideal solution; this enables a cheaper cost of capital for the company, as it requires interest rather than a dividend.
30% equity and 70% debt is good ratio and can make the company easier to manage. This is generally the accepted ratio which tax authorities and capital providers like to see. This usually makes the company more likely to attract further equity investment, as the potential shareholders can see that the management has understood that debt needs to be part of the company’s financing strategy.
2: Test your financial model – it must be robust
Put your figures into a spreadsheet and test them. Try out different scenarios – see what happens to the numbers. This demonstrates that you are prepared for different outcomes. You must also show the different types of returns from the different sources of capital, cashflow for at least the next 12-18 months, and any dependencies. This will show that you are being sensible and serious.
3: Be realistic about your valuation
To get a sensible, realistic idea of the value of your company, compare the most recent valuations for transactions in the space. Don’t pick an outlier valuation, instead choose something in the middle. This will show potential investors that you are being reasonable and make them more likely to invest.
4: Decide on the appropriate people to approach
For example, Sola Bank and Baldetton Capital work in the £100million arena. In the £1–5million area, try EIS/SEIS funds and VCT funds. (If you don’t know what this means, this is where an introducer like me can be helpful in providing introductions and knowledge, so drop me a line for a bit of guidance).
For smaller amounts contact Angel Investors. A Google search will deliver a list of Angel networks, or some research on LinkedIn. Then dig into each one to see if you meet their criteria. But do also ask your network for recommendations and introductions, and approach your family and friends for help if they’re a good fit. These small amounts add up – and can help give you seed that will attract a bigger fish later.
Fundraising is an art, not a science; you can be lucky or unlucky
5: Make contact and ensure you follow up
Target your funders carefully, do some background research on them so that you know you are contacting the right people, check that your business is in their sphere of interest and at the right stage for them, and that the amount of money you are looking for is appropriate for them.
Fundraising is an art, not a science; you can be lucky or unlucky. So, make sure you contact enough funders to manage your own luck and tap into as many people as possible.
Once you have drawn up your list of people to contact – work through it systematically and methodically – and always follow up!
6: Prepare the right information for the right stage in the process
It is essential to prepare a one-page summary of the opportunity. Too much information is not helpful. This document should include a summary of the opportunity; what investment is being sought and what kind of business is going to be generated as a result, including a potential return if it’s possible to identify that. It must be an accurate summary of the business, be clear, concise and easy to read and understand.
Once a potential funder is interested they will then want more information. Approach this as a sales document/pitch. It must be able to work on its own – and not require you to be standing there explaining it.
It needs to answer the following:
• What is the business?
• Who are the management team?
• What is the market size?
• What is the opportunity within the market?
• How much money is needed?
• What is the money going to be spent on?
• What kind of business will be created post investment?
7. Take your team with you
Yes, the people at the top are important, but investors like to see the team as it is team they will be backing – not an individual. Don’t go on your own to a meeting with a funder – this can use up valuable time when a team approach would be more successful and efficient.
With the team at the first meeting, the funder’s questions can be answered. If they aren’t there, then you’re down to an inefficient and long-winded process of following up – and a chance for the funder to go ‘off the boil’.
By following the steps above, you are more likely to be successful at raising the money you need for your business. Preparation, putting in the necessary time, and perseverance are all key aspects of the funding raising process.
ABOUT THE AUTHOR
Clive Hyman FCA is founder of Hyman Capital Services offering expertise in due diligence and managing change in business including raising equity and debt capital, mergers and acquisitions, interim management, board management and governance, deal structuring, and company turnaround.