Engaging successfully with private debt funds can be very different from working with a bank to arrange a lending facility. Here we take you step-by-step through the key stages when raising investment from non-bank funders.
Step 1 - Explore your options
As the saying goes “information is power” and understanding what are your options is a key part of any fund raise. This is particularly true in non-bank financing markets, where the availability of different types of finance shift with the economic cycle and the ebb-and-flow of the funds own fund-raising cycles. Talking to a range of advisors, as well as a thorough google search, should provide information about what type of capital is available to businesses like yours.
Step 2 - Decide what type of finance
Many business owners know they need capital, but are unsure what type of financing is best to meet the needs of their business. For business owners emerging from the early-stage nest of seed investment, angel investors and venture capital, debt may seem like a new and unknown element. Other asset-heavy companies may be looking to raise equity, de-risking their balance sheet in the expectation of an upcoming economic storm. Choosing the type of finance you want will be the first key decision you will make before securing the capital your business needs.
Step 3 - Get prepared
Fund raising is a rigorous process. Fielding questions from information-hungry analysts about seemingly trivial aspects of your company can seem a fruitless task – particularly when it happens along-side the day job of keeping cash coming through the door. That’s why preparation is so key.
By ensuring you have answers to the most common questions in place before fund raising starts, you take the pressure off the early stages, increase your capacity to speak to multiple funding partners enhance your credibility to your potential investors.
Step 4 – Come to market
With your key documents and early Q&A answers in place, it’s time to start approaching investors. An advisor may be helpful in helping you to decide who (and how many) to approach. The right number will give you enough options, but not so many as to overwhelm. Hopefully, your advisor has been sounding out investors as you finished preparing your final documents, making the move from concrete contact to introductory meetings a swift and pleasant one.
At this point, the time spent preparing your marketing documents should pay off, as the perfunctory questions are answered and you can move-on to discussing the key aspects of your business.
Step 5 - Choose your funder
Initial meetings surpassed and you have a range of financing options available to you. With indicative pricing negotiated, most funders will look to go into exclusivity before finalising deal terms. At this point, the business owner has to decide which option is the most attractive. Sometimes, the decision may be taken on price alone, other times the experience or characteristics of a particular fund may make them the preferred partner when seeking investment. The flexibility certain funds are able to provide may be decisive, with the ability to tailor the type, and profile, of their capital solution ensuring a harmonious match for your needs.
Step 6 - Due diligence
With a funder found and a term sheet in place, the risk of failure falls substantially. Nevertheless, before an investment is forthcoming, the funder still needs to legally substantiate the facts and figures provided during negotiations. This may include an on-site visit to your place of business, a review of contracts and key documents central to your operations and some detailed checks on your background as a director.
Step 7 - Secure funding!
Subject to the absence of last minute surprises and a full-bill of legal health, both parties are in a position to sign on the dotted-line, with the capital injection and boost to your business following shortly after.