Throughout the years, I have helped many companies to either raise funds, be acquired or do an IPO (Initial Public Offering – stock market launch). These activities always had a goal. Companies needed to finance a new product, new markets (usually international) or a new strategy (technology or marketing). To raise money in many ways is very time consuming, ego crunching and strategy thinking orientated.
Let’s have a look at the three examples I give in this paper.
Whatever you decide to do to finance your activity, the first step is to build a business plan orientated around the main goal of why you need to raise funds. The business plan needs to be articulated around:
– The business details (place of business and company details),
– The executive summary (business summary, business aims and financial summary, the elevator pitch)
– The owner’s background (why do you want to run your own business? previous work experience, qualifications and education, training, details of future training courses you want to complete, hobbies and interests, additional information)
– Products and services (what are you going to sell)
– The market (anything around your potential customers and what they want)
– Market research (what do you know about your market)
– Marketing strategy
–Operations and logistics
– Costs and pricing strategy
– Financial forecasts
– Back up plan
The main advice I can give you in building your business plan is:
It’s really important that potential investors can understand what your business is all about in a quick glance. Make sure you include a summary of your business, how it will make money right from the start and use simple language throughout.
Being specific is just as important as being concise. The details will help you drill down into how you will actually deliver your plan.
Know your market
A big part of knowing whether your business will be successful is understanding your audience. Make sure your plan is clear about your target market – who will you be selling to and how many other companies are already selling similar products?
Know your finances
The other essential part of a business plan is the finance section. If your business isn’t going to make any money, it won’t be successful so you need to be very clear on how you will make a profit. Use it to your advantage – your plan will be incredibly useful when it comes to securing loans and investment, but that’s not its only use. It’s also a personal tool to help you understand your objectives.
Having someone outside of your business helping you challenge your business plan is always good. You do not need someone who will take a piece of your benefit, use a consultant whose interest will be the same as yours: make your company successful.
Let’s now start with the first activity which is fund raising.
Your business plan is built, it has been challenged and you feel pretty good about your company and your market.
You make appointments with VCs (Venture Capitalists) or bankers. The first meetings will be very disappointing. People who do not know your business per se, will kill your business plan. You will feel terrible and very depressed. This is part of the raising funds journey. Do not worry. These people in front of you have to make you understand that your business is not worth as much as you say and that if you do not choose them, your business will not survive. Keep going until you meet the right one that will bring you know-how, market knowledge and management experience. It is essential that you find yourself in a win/win situation and that both parties will benefit from this relationship.
The next step will be a due diligence of your business. On your side, the main thing you will need to do is publish on a data room the main documents that the investor will request. There will be several visits on the company’s site and several lunches for the investors to know you better. Depending on the due diligence results, there could be some renegotiating of the terms.
Once you have agreed with the VCs or bankers to the main terms, you will receive a term sheet from them outlining the agreement. Please know that you can still negotiate the terms if you feel your business needs it.
Once you sign the term sheet, you will get the money soon after and can start implementing your project.
I cannot give any timing on this process as it totally depends on the investors and the due diligence that will take place.
Once again, the most important element here is your company. Please lower your ego and think only about your company and what it needs to succeed.
The second activity is being acquired. It can either be started on your side (you have decided to sell your business) or it can come from a company that wants to acquire you. The first part is very straight forward. You will approach directly or indirectly (preferred option) a company that you think could benefit from your products, market positioning or employee skills. You could ask one of your investor to approach the company and start the first meetings. The reason why we would prefer a non-direct approach is that you keep your negotiation power intact. If you approach a company directly, they know you want to sell and they will use it to negotiate the price down.
Once the meetings have started, you will need to share your business plan and start negotiating. The main points as far as you are concerned will be to demonstrate that the 2 companies, the products, the skills are complementary. The buying company will lead the negotiations. They will be doing the due diligence and then issuing the terms sheet.
This process can be much quicker because there are only two parties involved. This creates simpler access to funds and decision making.
Finally, the last activity is the IPO. During the process, the pre-IPO work is intense. Not only do you have to choose a bank to be with you but you also need to work on your communication. Many meetings will happen and they are all time consuming. Then, CEOs must focus on meeting potential investors during time consuming roadshows. They must provide statutory information such as business plans, shareholders information, financial and accounting details. They must provide the SEC or the AMF (US and France) all legal papers, files and documents. In the meantime, the CEO must continue to deliver the business, manage the company and ensure that the numbers are always in line with the business plans presented. This is a tough job as one cannot be prioritized over the other, they both require the same attention.
IPO is a great tool helping to leverage in a very powerful way communication and financial activities. It allows international growth and will allow the company to be mechanically valued. However, if the business turns and the company is not capable to foresee market trends and customer’s expectations, it can turn around and be very negative.
I hope this paper has given you a good vision of what to do and how. I did not go into too much detail of the processes because it would have been fastidious for a post on a blog.
The main point that I would like you all to remember is that you will need to have someone with you to accompany you. Someone who cares about your company and not about his/her bank account. Someone who knows your market but not your company. Someone who can challenge you in a productive way. Do not do it alone.
Feel free to contact me via my website www.babin-business-consulting.comor this blog to discuss further.