There is no standard playbook when it comes to raising funds; each business is unique after all. Of course there are guides and rules of thumb but if you are seriously considering raising finance we would advise you ask yourself a series of basic questions.
First: do I actually need to raise money and if I do, what would it be spent on? If you can’t answer this positively and clearly (or even at all!) then you are not ready to raise money. There is a cost to any funds you take on board, so you need to be crystal clear on how it is going to enhance your business.
If you can pass question one, the next question is how much should you aim to raise? Raise too much and you will be diluting your shareholding for no additional upside. Raise too little and you will need to raise again quickly, and without the time to demonstrate growth you could face a punitive valuation. The below offers a rough guide to how much you could raise
Finally, ask yourself when to raise? If you fit nicely in one of those rounds it will be easier to raise money as funds are geared towards fitting into one of these stages. However, the above is only a guide and you need to base your requirements on your own business, financials, metrics and projections.
Most importantly you need to consider the runway – at what point will you run out of cash left in the business? Raising too early may mean you have not yet hit certain milestones that will improve valuation and reduce the dilution you will experience, but leaving it too late means you run the risk of running out of money and either closing as a business or having to take punitive terms on an investment as you are in a weak, and risky, position from an investors point of view.
Lastly, experience says it is unlikely you will be able to raise money in less than three months, so make sure you budget enough time for the round to close.
Simon Wax, Partner at Buzzacott Chartered Accountants