You have limited experience of capital raising so you need a corporate finance advisor, but then you have little experience of corporate finance advisors, so how do you know if they’re any good? We provide some top tips for aspiring business looking to go beyond their accountant or local business advisor when embarking on a non-bank fund raise.
1. Market knowledge
Any funding market can be opaque, murky and treacherous. Multi-million loans do not come off the shelf and deciding what options are available and at what price, requires time, effort and good connections. A key role of any corporate finance advisor is to be able to provide that information: elucidating on how much different funding options will cost, what investors look for in companies and knowing which funders would be a good match for your business. They may not be willing to give away names straight away, but they should be able to give an idea about how much are may be able to raise, the likely cost, if any equity will have to included in the deal and what type of funder would be interested in lending to your business.
2. Due diligence help
Getting ready for investor Q&A and the rigors of the due diligence process is an essential component of any corporate advisor’s mandate. Good advisors should be able to provide you with a list of documents that you will need further down the line. The list should consist of sales documents that explain what your company does, what the investment opportunity is and a financial model with at least 3 year forecasts based on the underlying drivers of your business. You should also have materials that help a potential investor quickly establish the facts about your business. This should include things like historical financials, an organisational chart, the major shareholder register and corporate governance documents (such as your articles of association). Remember, that the more information you have in place when you approach investors, the less time you will spend on speaking to people who aren’t suitable for your business.
3. Negotiating skills
Entering into conversations with potential investors is only the start. You may have the cashflow to pay the interest on debt, but no one wants to borrow at any cost. Further, it can take time for you and the investor to agree on certain features of the loan and a risk profile that both you and the investor are happy with. You may not have much experience of the negotiating the cost and form of capital instruments, but your advisor should. Their involvement shouldn’t end at introduction, with a good advisor helping to guide the negotiations from first meeting to closing.
Financial advisors tend to be expensive. By asking for fees a percentage of the total fundraise, just quite how expensive may not be immediately obvious. That being said, some advisors are more expensive than others and there is no better way to find out what the market price is by kissing a few frogs and asking around. Firing out a few emails to a google download of corporate finance houses is one way to get an idea of the going rate. As with many B2B services, it is important to realise that the correlation between price and quality does not necessarily just run one way.
5.What do they spend their time doing
That a company can do something, doesn’t necessarily mean that they are good at it. The chap giving you accountancy advice may also have in-house corporate finance house advice and have fundraising capacity. However, the more time and attention the company gives one, the less time it spends on the other. This wasn’t such an issue when the big banks dominated the SME lending market. However, when navigating the non-bank financing market and trying to identify the right investor for your business, hiring someone who is fully focussed on fund raising can save you a lot of time, money and effort.