helping entrepreneurs create, build and realise value

Raising finance

Funding growth remains a constant challenge for entrepreneurs. Often retained profits from the business are insufficient to fund the opportunities available to the business owner and external finance needs to be found.

Typically, businesses get finance from a variety of sources including family and friends, government grants, government backed loans, asset finance, bank loans, business angels, private equity and through the capital markets. It is a huge and complicated ecosystem and our role is to find the right type of finance, which suits the needs of the business on the right terms.

Raising private equity funding (institutional investors, business angels, government backed) as a part of an overall fundraising is complex, and will dominate the overall finance raising process. The business owner has to consider several issues including dilution of equity, potentially onerous terms, a likely position on the Board for the equity provider and a clear focus on exit. Private equity will be most interested in the quality of the team, the growth plans of the business and getting a strong return on their investment.

Conventional bank funding on the other hand, is largely driven by serviceability and asset security. Serviceability requires the business to demonstrate its ability to repay the associated capital and interest payments and other charges when they fall due. Asset security allows the bank to form a view on risk of default against the quality of assets in the balance sheet (freehold, Plant and Machinery, stock and debtors).

The role of Realise Capital Partners in raising finance is to ensure that the quantum of funding and type meet the needs of the business and is provided on the best available terms. Our fundraising process is typically as follows.

Key StepsDetail of processComments

Step 1
Define funding need and quantum

  1. What is the story behind the funding need; is it working capital, expansion capital or replacement capital
  2. Quantify the funding requirement over a 3-5 year forecast period
  3. Build a financial model to test total requirement and affordability/serviceability
  4. Sense check forecasts against overall business strategy and performance

The starting point for any fundraising is to clearly articulate the funding need, and tie this back to business strategy. Funders want clarity around the use of funds and the difference it will make to business, particularly where the requirement is for growth or expansion capital.

Step 2
Identify potential funders

  1. Debt or equity or both. Ability to repay will drive this.
  2. Select the most appropriate debt or equity providers to approach
  3. Source from existing well known contacts and those who have successful track record for completing offers of funding
  4. Use financial model to assess impact on cashflow and equity position
  5. Make approaches and gauge funder appetite. Use feedback to prepare for next stage

Matching the right funders with your business is crucial. They will be your partners for several years and the chemistry and shared vision, particularly with private equity will be essential. Terms can vary enormously as well, reflecting risk, sector preference and sentiment, so a good knowledge of the funder market is key.

Step 3
Business Plan and forecast

  1. Bring business proposition together in a clear, sufficiently detailed plan, fit for purpose
  2. Run sensitivities to understand impact on serviceability under various scenarios and stress test covenants
  3. Circulate plan under NDA to selected funders
  4. Present summary of the plan to funders with management team.
  5. Anticipate risk factors and concerns. Address in funder meetings
  6. Invite offers for funding

The quality and depth of the plan will be dictated by funder requirements. If funding can be secured against assets (debtors, stock, Plant and Machinery, property), the information requirement is fairly limited. However, if funding is in the form of equity, then a detailed plan, covering strategy, management, market, product, and risk factors is a must.

Step 4
Negotiate terms and manage the due diligence process

  1. Manage questions and follow up with interested funders
  2. Maintain momentum through frequent contact
  3. Insist on detailed written offers
  4. Shortlist funders and negotiate terms to elicit a credit backed offer
  5. Project manage due diligence enquires, and address any issues of concern
  6. Confirm final terms

Negotiating final offers can take longer than anticipated and can prove frustrating as we work through several layers of due diligence and shifting offer terms. We manage this phase by anticipating funder concerns and managing the flow of information, so we are able to positively influence funder conclusions and decisions. In our experience, this is a critical facet of success.

Step 5
Complete legals and close fundraising

  1. Work with your legal advisors to ensure all banking and security documentation is consistent and agreed terms are appropriately reflected
  2. For private equity, ensure the detailed terms of shareholder and investor related documentation is as expected
  3. Agree covenant and reporting schedules with the bank and equity funder
  4. Finalise agreements and secure funding.

A detailed review of the legal documentation is essential. Terms can be introduced which could prove to be disadvantageous and we will work closely with your legal advisors to ensure that the essence of the deal is reflected in the legals.