Looking to finance your scaleup? Here are a few alternative ways to do so

It goes without saying that recent global events have drastically changed the landscape for raising capital and securing financing. 


But who better to seek out alternative ways than the innovative tech startups of the UK! 


Remember, getting to where you are now wasn’t easy, and finding alternative financing routes won’t be either. But you’re in a better position than many to take advantage of the options. So strap in and get ready for the ride!


Key considerations for your scaling rounds


Are you thinking about raising your Series B?


If so, then one of your most important considerations will be how you’ve spent your Series A. 


Investors will want to see how well you’ve utilised your funds to date in order to gain traction in the marketplace and prove out the scalability of your proposition. 


Your Series B raise will therefore need to hinge on the details of your past accomplishments. And this means using concrete examples, evidence and KPIs.


What about your business plan? Well, this will need to be even more robust than for your first raise as it will need to be based on in-depth market research and analysis in order to provide proof points for scale. 


Market guesstimates will no longer cut it - you’ve been operating for long enough now to know the details and show how your business fits in with these. 


Looking back - what did you do with your series A?


A Series A round turns a fledgling idea into a full-fledged brand. 


You’ve probably been using your capital to double-down on your product-market fit. 

Your product may even have significantly improved.

You’ve also probably hired some key personnel and established more of a foothold in the market. 


If you have, then well done - these contribute to a higher valuation which will play a crucial role in your Series B. 

But here come the trickier questions...


Product

How have you created a best-in-class product that you’re selling into the right market with ample opportunity for growth and scale?


If you’re operating within a crowded market, then how do you stand up against the competition?


Where are the proof points to show this? How do your financials evidence this further?


Don’t forget you can use ‘softer’ or anecdotal evidence here too - for example, customer testimonials and feedback to support your data points. 


Leadership

Especially important if you’re a first time CEO or founder!


Do you have the best people in place to execute?

Do you also have the very best advisors surrounding your business?


A key mistake many VC-backed businesses make is equating the number of employees you have with your degree of success. And whilst this is often one of many success indicators, you should also be considering quality over quantity. 


Your best bet here is to use a strong advisory pool who are able to support your business and complement your people in conjunction with your exec team. 


Revenue & business fundamentals 

Of course, you will need to prove you have strong revenue streams, and the numbers to back these up as well.


Are your streams direct or indirect? What’s the split? What are the risks involved here and do you have the balance right to mitigate those risks? 


In addition, you’ll need to show that you’re able to generate leads, as well as retain customers.


What programmes do you have in place to support this? Have you built a best-in-class demand engine? What stage is it at? What results have been proven out so far and what are the next steps to build it out further?


Down to brass tacks - your fundraising approach


Funding rounds for Series B and up are all about fueling growth, so you need to make sure that you know what growth you’re going after, why you’re choosing that direction and how best you will utilise your resources to achieve it. 


Here’s a step-by-step breakdown:


Step 1 - determine what type of funding you want to raise.

Hint: the same type as your previous rounds will help with reporting and investor management. 


Step 2 - understand clearly what your valuation is, how much equity you will be giving away  and what type of terms you need to meet (i.e. debt).


Step 3 - give yourself at least 6 months to fundraise. Existing investor relationships can help and even accelerate the process. 

Hint: build relationships as early as possible. It should always be in the back of your mind well before you even need to plan it!  


Step 4 - ensure you’ve got all these items ready to go:

  • Company mission & vision

  • Your value proposition

  • Industry outlook & target market

  • Key product &/or service differentiators

  • Expansion opportunities based on market research

  • A list of competitors

  • Current & future marketing initiatives


And in terms of your numbers:

  • Balance sheet

  • Income statement

  • Cash flow projections

  • Cost of customer acquisition (CAC)

  • Customer lifetime value score (LTV)

  • Cost of hiring & training new employees



And finally, your financing options


Put very simply, you have three main options:

  1. Your Series A investors.

  2. Partnerships with new investors.

  3. A combination of the above.

Like you did in your Series A, building a strong investor pipeline is key. 


You’ll want to do this not only to better your chances for securing financing, but also because the more feedback you get along the way, the better you can refine your business and pitch. It also gives you more bargaining power. 


Beyond the financing lens, you also need to ensure that your Series B investors are ‘invested’ in the more traditional sense. 


In other words, you need to see them as partners and enablers of your business - and that means checking they have experience in your business field and can support your next steps strategically as well as financially. 


One final note on this point - it’s critical to find out early on what success looks like for your investors. Does it align with your goals and aspirations? Are you clear on expectations so that you can not only meet them but manage them on an ongoing basis?


Alternative 1 - VC firms

Your first alternative in this quest for financing is VC firms. 


Here’s what you need to know before going down this route:

  • They’ll want equity in exchange for capital.

  • They’ll have extremely high expectations of growth!

  • They are very often active managers in the day-to-day running of your business.

  • They’ll have terms that might limit capital from other investors or stipulate they have a say in your cap table. 

Alternative 2 - Crowdfunding

Next in line is crowdfunding - a very viable option, especially for smaller amounts and if you know your investor audience is active on popular crowdfunding platforms such as Seedrs and Crowdcube.


Here’s the lowdown:

  • Crowdfunding allows you to market your business to a range of investors, not just institutional ones. 

  • It can often double up as a marketing tool. 

  • Crowdfunded businesses might have limitations on capital amounts & allowances per investor. 

  • Don’t underestimate having to manage multiple investors all at once - it’s not for the faint-hearted!

Raising a Series B is challenging, make no mistake about it. You’re undoubtedly asking for a large sum of money, so investors will be scrutinising your business in ways you probably haven’t experienced before. 


However, if you start early, and get your financial ducks in a row (and memorised off by heart!), then you’ll have a much better chance of securing the capital you need and snapping that photo of the champagne flowing!


And just remember, there’s no-one better placed than you to drive this forward and secure that ambitious future that you and your team have been dreaming of.


If you need some help along with way from expert advisors in funding and raising investment, then just get in touch with us on info@invigorateplatform.com



© 2020 Invigorate Platform LTD

  • LinkedIn - Black Circle
  • Twitter - Black Circle