Despite all the issues during the last two years business have still managed to raise capital. This will continue in 2022 although the number of successful raises will still be fewer than it was in 2019.
Let’s review some 2021 stats for early-stage businesses, and then offer suggestions to help your next equity raise.
All data included here is based on UK headquartered companies who raised equity capital from 01 January to 01 December in comparative years. Data comes from Beauhurst.
Raises – business stage
In reviewing the raises in 2021 we’ve focused in on earlier rounds to give a picture of what is happening in this part of the market.
The number of rounds by broad business stage shows that seed stage companies accounted for nearly half of all the rounds in the year.
Excludes dead and exited businesses.
Raises – Round Size
Often businesses do a number of smaller rounds, and it’s possible that the same business is being counted twice in any category.
What do we see when we look at the data for the number of raises by round size? 70%+ of all rounds were under a million and 40% were under £250k.
Does this mean you should raise £250k or less because there seems to be more activity? Running multiple smaller rounds is worth considering. However, the strategy depends on which type of investor you’re targeting.
Remember that this data shows reported raises. No one reports unsuccessful raises, and a conservative estimate is that half of businesses fail to reach their target.
Given this how should those with early-stage businesses prepare for a successful fundraise?
- A clear proposition and USP
Remember how competitive it is. We receive hundreds of applications each month and see the same business ideas over and over again. A good idea alone is never enough. Make sure the problem you’re solving and how you’re solving it are clear. Use simple language. Strip out the jargon, minimise the adjectives and provide a description that your least business savvy friend can understand. If no one can understand what you do, no one will want to invest.
Differentiation is also key. What makes you so special? Everyone has a competitor- even if that is the option of doing nothing. So, outline how you are unique, how this is sustainable and be sure to take an objective viewpoint. It’s easy to believe you are better than your competitors, but does anyone who doesn’t work for your business think that? If you don’t know, find out.
- A standout team
Investors invest in people, and many would take a good idea with a great team over a great idea with a good team. So, make sure you have a standout team. That includes sector experience, a balanced management team in terms of functional experience and any previous exits are a bonus.
If you are light in one area, it’s good to seek an advisor or non-executive director as that can give confidence to potential investors. They’ll also provide valuable advice and contacts.
- Showing traction
Coming armed with proof that you have product-market fit and sustained growth goes a long way. If you have any big brands as customers or partners, highlight this as it provides further validation for your business. This is especially important for consumer brands and marketplaces. We see a lot of businesses in these categories. Unless you have a growing customer base, your business is little more than an idea and therefore perceived as a big risk by investors.
- Professional preparation
Getting investment ready requires a lot of work, including preparing numerous documents such the balance sheet, the subscription agreement, the cap table.
We always recommend companies work with an advisor to create their deal as it helps ensure all information is available, professionally presented and credible. There are short-cuts, such as downloading templates, but the risk of a poorly presented deal is just not worth taking.
- Effective targeting of investors
Be clear on the types of investor you want to target, be it regional funds, angel investors, or VCs. Then develop a targeted list.
If possible, work with a network like Envestors, which has deep knowledge of the players in the space as well as pre-existing relationships with investors. This approach will take away the guess work of trying to engage with potential investors on your own.
The early-stage investment in 2022 is shaping up to be much like the past year. This means preparing well so you are ready for the competition for funds, and the amount of time your fundraising will take.
ABOUT THE AUTHOR
Chantelle Arneaud is from Envestors. Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities and sectors – creating the single marketplace for early-stage investment in the UK.
Envestors partners with accelerators, incubators and angel networks to provide a white-label platform empowering them to promote deals, engage investors and connect to other networks.
Founded in 2004, Envestors has helped more than 200 high growth businesses raise more than £100m through its own private investment club.
Envestors is authorised and regulated by the Financial Conduct Authority.
Web: https://www.envestors.co.uk/
LinkedIn: https://www.linkedin.com/company/envestors-llp/
Twitter: @EnvestorsLondon
