Raising investment for your start-up: 5 tips for getting the deal done
There is currently a real buzz about start-up and entrepreneurial activity in Scotland. With the ongoing work of accelerators like Entrepreneurial Spark, the continued growth of hubs like Codebase and the emergence of tech unicorns Skyscanner and FanDuel, the Scottish entrepreneurial ecosystem looks in rude health.
Many entrepreneurs whether they are in the embryonic, spin-out, start-up or growth phases will be considering ways to secure investment for expanding their business. Having worked with various entrepreneurial companies and their investors we would like to share some pointers on how a business might approach investment:
- Allocate time: raising investment can be a time-consuming job. Within your team, clearly define your roles. It is important that the person tasked with fundraising has the time to dedicate to that task while others in the organisation get on with the ‘day job’ of running the business. Decide amongst yourselves who is best suited for the role.
- Be realistic on timescales: however enthusiastic an investor might be about your business, the majority are unlikely to write you a cheque instantly. Engaging with an investor takes time as they will carry out their due diligence on your business before parting with their cash. Once you decide to start fundraising, give yourself sufficient cash runway – the sooner you start the better!
- Research your investor: while the majority of due diligence in a deal will be on you and your business, ensure that you take the time to carry out your own due diligence on your investor. How do they operate? Are they heavily involved in your sector? Have they recently realised some investments and have cash to spend? Do they have a large portfolio of investments in which their cash may be tied up? Some basic investor diligence will be important to ensure that you know who you are about to engage with as you could be in partnership with them for a considerable period of time. Bear in mind that you may need to approach your investor for further funds down the line.
- Prepare your business plan thoughtfully: a properly prepared and considered business plan is crucial. Show your investor how you are going to spend their money and the reasons why you have arrived at your valuation. Prepare financial projections which are realistic and show you have knowledge of the marketplace you are entering. While you may have some innovative technology and ideas, you will need to show to an investor why your business is a great opportunity for them.
- Be ready to negotiate: most investment deals will come with certain conditions. These might include you granting your investor veto rights over certain key matters as well as you giving various warranties to the investor about your business. Also, the investor might insist that your shares are made subject to restrictions if you leave the company in particular circumstances. These are all matters that will need to be considered in detail and negotiated.
The above list is not exhaustive as there will doubtless be other issues that arise during the course of a deal, but this gives a flavour of the things to consider when considering an investment. Morisons Solicitors are involved in a number of investment deals across various sectors in the UK and have expertise in guiding companies through the investment process.
We are proud to be a partner of Startup Summit which this year is taking place on Wednesday 1st November at Assembly Rooms, George Street, Edinburgh.The Startup Summit is a one-day event about all things start-up and the ever-changing landscape of business. Morisons Solicitors will have a stand in the exhibitor hall and Stephen Clark (Twitter: @_stephenjclark) or Shaz Ali would be delighted to speak to you, so if you are attending please drop by!< Back