There has never been a better time to raise loan financing from the private debt market. Nevertheless, there are several challenges at each step of the fundraising process. By following a simple process, you can significantly increase your chances of funding success.
In most instances when you first meet with a potential lender, they will have likely conducted some research into your company and looked through any prepared material. Management teams should realise that this is no mean feat and that the lender has decided to invest both their time and energy on your project. Congratulations for reaching this stage!
Through our experience and research, we have found that there are 5 key ingredients for a successful first meeting and by addressing these ingredients you should be well on your way to a second meeting.
1) Have a clear plan
Each business has different funding requirements, but on the face of it, they normally fall into three categories; start-up, expansion and maturity. At every point, a funder will be looking for answers that clearly layout how you will go about moving up the steps.
|Stage||What they look for||What to include|
|Start-up||Clear Path to Profitability||It is essential that you can clearly demonstrate a path to profitability and a grander vision for the business. Do not overestimate your forecasted growth and base your forecasts on realistic achievable goals|
|Expansion||Executable Growth Strategy||Once a business has become more established, a lender will be looking for an executable growth strategy. Highlight the strong and growing momentum of sales and how the business can be scaled whilst minimising the level of risk, but be up front with any potential challenges|
|Maturity||Proven Business Plan||At the point of maturity, the funding landscape shifts significantly and lenders base a company’s ability to service debt on the back of past performance, information about market share, organic growth and overall sector growth|
2) Excellent management team
One of the most important aspects for a lender is the management team. Clearly showing how the management team has performed in the past, in relation to their forecasts and goals is important, as it brings credibility to the business plan and the lender's willingness to believe in it.
An often-overlooked nuance of the private debt market is how relationship driven each transaction is. The lenders will be looking for a management team that has strong values and personable traits. In the end, if successful, there could be a 3 - 7 year partnership and both parties have to enjoy working together through thick and thin!
3) Uncluttered information
Lenders typically approach the first meeting by either sifting through the data that has been provided or they focus more on the relationship aspect and management capabilities. Either way, it is of the utmost importance that the data is easily digestible, uncluttered and easy to navigate.The three most common files required include,
- Presentation highlighting the business plan, historical achievements and management team
- Three years of accounts and the most up to date management accounts
- Forecasted financials for 2-3 years, spreadsheets are better than hardcoded PDFs
4) Unexpected value
Private debt funds often see value where banks do not. Identifying and highlighting the following traditional and non-traditional sources of value can sometimes mean the difference between the success or failure of the fundraise.
- Plant & Machinery
- Trade Debtors
- Real Estate
- Stable Free Cash Generation
- Patents & IP
- Trademarks & Copyrights
- Signed Contracts (pre-invoice)
- Sales Pipeline
- Unique Market Position
5) Explainable organisational structure
Companies that follow an acquisitive strategy or have conducted a series of equity rounds can often have complicated organisational structures. Due to this (and even if this is not the case), the team should be able to clearly explain the composition of the organisational structure. They should also make it clear where the finance is to be held and what ranking it may have (1st lien and so on).
Long Lasting Impression
In conclusion, each funder will have different preferences and apportion greater weighting to certain features of a business and its plan. All good advisors should be ready to prepare you for the nuances of each lender and how to go about approaching each of them in the best way.Nevertheless, having these 5 key ingredients to hand when first sitting down at the table with a funder, will be viewed positively and will leave the fund impressed by your business acumen, your shining management team and how clearly backable your company is. You will now be well on your way to funding success!