Chris Barling, who has raised millions of pounds for his company Actinic, advises on how to secure business funding.
First some background. I co-founded Actinic in 1996. After a year or so of self-funding and borrowing from friends and relatives, we raised £165,000 from an angel investor, then later £1.5m from 3i venture capitalists. Finally, we went public on the London Stock Exchange, raising £25m. Since then I’ve become an investor myself.
Attracting investors
When you are seeking funds, you won’t feel it, but there is plenty of money around. You just need the right formula to tap into. So it’s important to understand the keys to attracting investment, particularly from business angels and venture capitalists.
The challenge is that investors, just like those on Dragons' Den, receive numerous approaches, but make few investments. How can you make yourself stand out, and get the cash that you need to grow?
I am assuming that you have a workable business, and a well written plan that covers finance and marketing without boring too much with detail. However, even when you have these in place, you still have a long way to go.
There are three keys:
- You must excite investors with the chance to make a lot of money,
- Convince them that the risk is low
- Explain how they will get their profits out. This is what they care about. Get it right and the cash will follow.
Incidentally, the way to generate excitement is to provide some hard data on the size of market that you can address, and what margin you can obtain. This must be evidence backed. Saying “we estimate the market at £100m and will take 70% share” without any facts to back it up is a real turn off. But don’t go into too much detail.
Key questions
Once there is an initial attraction, the key questions will be about the credibility, the commitment of the management team and business generally.
The best answer on credibility is to have a great track record of previous achievement. If you don’t, then get people involved who do, and get these experienced people onto your board. This will have a cost, probably in shares. You also need to listen to their advice; no one who is good will stick around if they are ignored.
The investors will also want to be certain that you are completely committed. Don’t mention any alternative business ideas as this would be a big turn off. If they put their money in, they want you devoted to making it grow, becoming profitable as soon as possible.
The next question is whether the business itself is credible. This is best demonstrated by having real sales and customers. In fact, if you don’t already have these you need to ask yourself some tough questions.
Investors will sometimes ask you to put your house on the line. I personally have always refused, arguing that I had already taken a pay cut starting the business, risked my career and was utterly committed anyway. Finally I pointed out that such a high price runs the risk of the directors behaving desperately if things get tough – which doesn’t promote good business practice or the protection of their investment. I would suggest that you sharpen these arguments up too.
Friends and family
Many people obtain their investment from family and friends. This has the advantage (assuming you know people with significant capital) that it’s easier to tap them. The disadvantage is that if the business fails, which is bad enough, you may also face losing key relationships. And I’m afraid to say that if you believe there is no chance of that happening, you probably don’t understand risk and should reconsider your career direction.
I myself borrowed money from family and friends to help get the business going. But I deliberately took the loans on personally so if the business went down I would still have to pay them back. And I kept the loans at a level that I would just about be able to pay them off over a few years.
Sources of funds
Finding potential sources is the easy part. You can find a list of angel investor organisations at www.bbaa.org.uk, and VCs can be found at www.bvca.co.uk.
Remember that the key lesson is to look firstly at the needs of investors. Only secondly present your need for money and how much sense the business makes to you.
Closing the deal
I can’t pretend it’s simple to raise money, and a pre-requisite is having a viable business and plan anyway. We ourselves presented to over 70 investors before getting our first funds. However, if you follow the advice here your chances will be improved. Good hunting!
Chris Barling is CEO of ecommerce & EPOS supplier Actinic.
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