While the question may be quite simple the answer can be a little more complicated, says Dr. Mark Rainbird, Managing Director of Funding Strategies.
Funding Strategies provides corporate advice, funding and exits for profitable expanding companies. In the course of acting for companies looking to raise finance or equity capital, the firm is often asked questions like ‘Will investors invest in my company?’ and ‘Do you have any investors?’ From extensive experience, while the question may be quite simple the answer can be a little more complicated, says Dr. Mark Rainbird, Managing Director of Funding Strategies.
Investors will invest in private companies but companies need to satisfy a number of key investor queries first. These are:
What does the company do?
How does it make money?
Who is running it?
How do they invest and what is the ask (essentially, is it fair value?)
How do they get out?
The company needs to be well packaged so the investor understands the value proposition, the strategy and the business model of the company. Without this understanding, many potential investors will not invest.
A company looking to attract investors simply must have an excellent information memorandum or investor précis supported by a data room of relevant company and investor information. Comprehensive financials including current P&L, Balance Sheet and Forecast are essential. Rainbird says Funding Strategies quite often move their clients to a "Limited Company" raising the level of governance and transparency (they must have audited accounts and a credible Board of Directors) to assist with investor confidence in the company.
If these sorts of steps are not taken it can be quite a hit and miss proposition around attracting investors, says Rainbird. There also must be a pathway to an "exit" for these investors, whether it is a trade sale or stock exchange listing. The investor needs to be engaged by the company so that they can follow the matter.
Giving the prospective investor regular updates on the progress of the company and a chance to meet with the company helps build trust and decrease completion risk around the investment.
Funding Strategies has lots of potential investors, but the real question is whether they will invest in a particular company as it is presented and at its current stage of development. The biggest concern investors raise is the valuation, and the company's ability to execute the strategy and business plan (to hit the forecast numbers and milestones). The valuation must be ‘fair value’ from an investor perspective for the potential investor to proceed with their investment.
Rainbird says different types of investors might be approached at different stages in the company's lifecycle and capital raising activities. For example, investors that are somehow connected to the company are more likely to invest earlier in the capital raising lifecycle.
One of the issues Funding Strategies find with some companies is they try to second guess who might be an investor. Rainbird says in his experience, almost anyone can be an investor if the company is presented properly and they have good management. People who are passionate about the company and its prospects will often invest, and investors come in all shapes and sizes: retail, sophisticated, overseas, family offices, venture capital, private equity, funds, high net wealth individuals, companies.
The issue is proactively engaging with them and allowing them to follow your company and to build trust and engagement so they invest when ready. Sometimes there is a mismatch in timing between what the company expects from an investor and what the prospective investor's time frame, so it is important to have a funding strategy to maximise the investor opportunities.
"Raising capital is difficult, but if you follow our proven process based on our experience and many successful raises, you are more likely to succeed," says Rainbird.
Contact Funding Strategies at [email protected].