What you need to know before you start fundraising your scaleup company

When your company is on the verge of a sustained growth spurt, it’s all about managing that momentum.

Often, this requires seeking funding in order to secure the foundation from which to expand exponentially. However, just because you’ve successfully survived the startup stage, doesn’t mean fundraising necessarily gets any easier.

Here are 5 vital things you need to bear in mind before you start fundraising your scaleup company.

1. Demonstrate that you really are a scaleup.

A scaleup is a growing company that has already validated its offering in the market and has proven that its business model is sustainable. Unlike a startup, a scaleup has a viable product or service, is revenue generating, and has a solid business model - its main challenge is achieving significant long-term growth.

In other words, scale-ups know that if they put £X into the business, they will get £Y in return. This means you need to demonstrate with total clarity that what you are raising the funds for really will fuel growth.

“Because we just ran out of money” is not going to fly with potential investors. Instead, you must prove why and how directing funds to specific business areas will unlock exponential growth.

2. Think carefully about what sort of funding you want

There are advantages and disadvantages for all the different funding sources, so you must think about them carefully. When considering debt capital, such as bank loans or invoice financing, the drawback is the interest that must be paid to the lender, and the control the lender has over your assets, especially when the going gets tough.

A failure to repay loans can result in insolvency, and/or loss of control over your business. On the other hand, the interest paid on borrowing is typically tax-deductible and in the long-term costs less than other sources of capital.  You benefit from the power of leverage.

Another way to generate capital is in selling part of your company to investors with equity funding. While no interest needs to be paid, the long term cost can be very high in terms of the returns made by shareholders in successful businesses.  Investors may also require participation at board level, and will expect a certain level of reporting and relationship management. This can be very positive, but can also be extremely demanding.

There is a certain art to balancing fundraising. Too much debt capital can get a company into trouble. On the other hand, a company might be missing out on growth prospects by not taking all available funding opportunities.

3. Prepare robust plans and forecasts

Again, you will need to demonstrate that you’re a true scaleup. This will come through in the robust and professional preparation of your business plan and forecasts.

What your business plan should include:

  • Succinct and convincing coverage of the market opportunity and the problem that your business solves

  • Details of your product/service and how it solves that problem

  • A demonstration of your lean and efficient operation

  • An ambitious growth plan and defined marketing strategy

  • Who is on your team and what is your ‘unique advantage'

What your forecasts should include:

  • A robust cashflow forecast and your balance sheet forecast, not just income and expenditure

  • Presentation of up to three potential financial scenarios to ensure your forecasts are really robust and will withstand scrutiny

  • Reliable calculations – excel models are notorious for containing errors

  • A full audit trail of all the assumptions and parameters used in the forecasting process

A full audit trail of all the assumptions and parameters used in the forecasting process
Do bear in mind that most funders will naturally assume that you won’t make your revenue forecasts, but that your expenditure will be higher than planned. So your forecast should be absolutely clear that you have already dealt with those possible objections and include clear evidence to support your assertions.

Make sure you take very seriously any requirement to provide ongoing information to the funder, such as bank covenants or investor reporting. Verify that your finance systems and team can deliver the necessary regular and timely external reporting.

4. Block out leadership time

The process of fundraising will use up lots of leadership time, far more than you imagine.  So it’s essential to smooth out company operations so that leadership can turn their full attention to the fundraising process without  business disruption. Do not plan to launch any new leadership-intensive projects whilst fundraising. The last thing you want is to miss your own financial targets whilst in the middle of a fundraise!

5. Get sound, professional advice

Seek professional financial advice early in the fundraising process, before you contact any potential funders. Yes, it’s an additional cost to consider, but that investment will demonstrate its value in a smooth fundraising process that should lead to a good outcome for your business. Fundraising is hard and can be exhausting. There are a lot more ways it can go wrong than right, and it takes practice.  The secret is to be equipped and prepared.

Finling helps fast-growing businesses escape financial struggle and scale successfully. You can count on us to support your company at each fundraising stage with impartial advice, development of financial forecasts, and tax and business planning.

As part of our commitment to making scaling less stressful and more rewarding for entrepreneurs, we can also manage any share scheme documentation needed; plus of course the ongoing accounting and reporting.

Are you planning a fundraising round? Get in touch with us today to find out how Finling can set you up for success.

Katy Carlisle