When you need to raise funds for business growth have you ever considered that you may be reducing your chances of success by using a model where time is limited arbitrarily?
Time is needed to raise capital and growth businesses are now realising the benefits of Always-on Fundraising, in which companies leave themselves open for investment 365 days a year.
An open funding round provides an opportunity to capitalise on any unexpected successes, gives the entrepreneur the best chance of finding their perfect investor(s) and with an investor relations mindset being a constant, follow-on funding. As the days of traditional, time-limited funding round are numbered let’s look at what you need to do to make the ‘always on’ model work for you and your business
Always on Fundraising – What needs to be done?
How does ‘Always on’ work in practical terms? While the concept is radically different some of the early steps will have a sense of familiarity, but you are looking at them through a different lens. Here are five key areas of activity:
- What is your investment opportunity?
You need to start by defining your investment opportunity which includes deal structure, valuation, share price and your minimum and maximum investment levels.
Even though you’re ‘Always on’, you must have clearly defined investment levels. This benefits all parties. Your minimum investment level protects investors by ensuring that you have a significant cashflow runway to execute on your plans and projections while the maximum level dictates the total number of shares you are willing to sell at that price, protecting the shareholders from dilution.
- Get the right tools in place
You need an FCA-regulated environment in order to promote your investment opportunity, accept pledges and draw investment. The new breed of White-label platforms like Envestry for Scale-ups, provide off-the-shelf functionality to allow companies to create a branded fundraising portal that easily links to their current site. With FCA-coverage built-in, companies can focus on the hard work of attracting investment rather than regulatory fine print.
- Promote, promote and promote
With your fundraising site up and running, it’s time to promote your investment opportunity. Before you do anything, think about the investor journey by type. For example, personal connections who may be new to investing will need more guidance as they go through the process than experienced investors. To accommodate those new to investing, how-to guides, investment glossaries and frequently asked questions are imperative. Whereas, your communications to experienced investors can focus on the why instead of the what.
- Have a first close
Once you hit your minimum investment level, you can do a first close and draw down the pledges, while keeping your round open. This allows you to start fuelling your growth while continuing to attract investment to your maximum level. Up until you reach your maximum you can continue to draw down funds at significant intervals as they come in.
- Close a round; open the next
While the name ‘Always on’ might imply one continuous round, the best way of using this approach is via a series of back to back rounds (tranches). As a growing business you will want to change your valuation and share price to reflect the progress you have made. It is worth noting that on rare occasions businesses may also reduce share price, known as a ‘down round’.
So, when is the best time to close one round and open another one? Clearly, once maximum investment level has been reached, the round will have to be closed. Beyond that, anything significant which justifies an increase in valuation, such as a securing a large new contract, reaching a customer milestone or securing regulatory approval on a product, should prompt you to close the round and open a new round at a higher share price.
It makes a lot of sense for businesses to use the Always on Model particularly if they are generally raising funds every six to eighteen months. In future I expect it to be the norm for all companies from seed through to sale to have a section of their website devoted to ‘investor relations’. A section which should attract interest from both loyal and new investors.
ABOUT THE AUTHOR
Scott Haughton is COO of Envestors, a fintech company that connects investors and scale-up companies. With its fundraising platform Envestry for Scale-ups, companies get a personalised site to promote deals, raise finance and engage with their investors 24 hours a day, 365 days a year.
Envestry has raised £100m+ for over 200 companies through its own private investor network.
Founded in 2004, Envestors is regulated by the FCA and has offices in the UK, the Channel Islands, the UAE and strategic partners across China.