Raising Funds

If you wanted to raise money for a business 10 years ago, it was said you needed a past, a present and a future. If you sought equity funding early in the development of your company you probably had to give up a lot of control and pay a high price.

These days the situation is quite different for a number of reasons. With World interest rates in decline there is a lot of money chasing lower returns. Price/earnings ration’s are going out and if you have a lot of money to invest you will know it is not easy to find good investment opportunities. This means that high risk, high technology investments are more attractive because of the highly publicised possible returns and the glamour attached to them.

Moreover, as the World is changing so quickly, modern high tech start up companies have the added advantage that they have no past to constrain them. An MD of one fairly new ISV actually boasts they have no legacy systems to hold them back or drag them down! So there you have it; 10 years ago you needed a past, present and future in order to have some credibility and these days the last thing you want is a past which, apparently, will hold you back!

There are many companies looking for finance and you must have a sound business plan and strong marketing strategy to win major investment. You must understand the size of your market, what share can be won and what that share is worth over the next few years. A strong gross profit potential is essential.

Business Angels can be found through advertisements, Chambers of Commerce or your local Business Link, Bank or Accountant. Business Angels are more interested in helping companies at the start of a business plan because they do not invest huge sums. Quite often they like the idea of investing in a business which they can identify with, and possibly make a contribution towards, perhaps as a non executive director. Because of the personal nature of a Business Angels involvement, any proposal will have to appeal to their particular interests and not just the figures. People like giving advice and are amazed if others follow it, so finding a Business Angel who can make a positive contribution can be very good.

Strategic investors are those people or companies that are important strategically to your company and welcome some of the protection and insight that being a shareholder can bring. These days, as companies try to reduce the number of suppliers, and the supply chain is shortened, the relationship between supplier and customer is more critical. In such situations there may be much benefit in one company having a financial interest in the other. This can be particularly important where a supplier has shared some of the development costs of a new product or service.

Venture Capitalists are much more interested in a company once it is established. Venture Capitalists like funding growth, which should be less risky. They are more likely to invest in market development than product development. Generally the sums of money will be larger and the time scales will be longer than the previous investment opportunities. Any representation to a Venture Capitalist will be to a higher and more complex standard and will have to appeal to a decision making unit consisting of different interests, skills and criteria. The criteria for judging investment potential will be more analytical than opinion based. Venture Capitalists look for a strong management team which can preclude companies in the early stages of development. They want high gross profit margin potential.

The London Stock Exchange and Alternative Investment Market (AIM) may be more convenient for UK companies, but NASDAQ appears to understand ultra high technology companies, and markets, better. For a traditional company the LSE or AIM would perhaps be first choice. For large sums of money in high technology companies, where the inefficiencies of listing in another country are less of a problem, NASDAQ may be more attractive. Certainly, any company wishing to trade in America or Canada should consider the advantages of listing on NASDAQ.

EASDAQ is a pan European exchange which is not dissimilar in many ways to NASDAQ and should be considered for those companies wishing to have a strong presence in Europe.

The London Stock Exchange recognises it has not met the needs of ultra high technology companies and has launched TechMark which is more suited to the small high tech company.

One disadvantage of a listing is in the administration of a company. Exchanges have different reporting criteria and different frequencies of reporting. Where the reporting criteria is alien, or more frequent, there will be a management overhead to satisfy their requirements. Hopefully Techmark will reduce the administrative burden and provide an exciting base for high technology companies. Who knows, Techmark could become the driver which makes Britain the high technology centre of the World that it once was.

The larger the investment and the more noise your company makes in the market, the more attention you will attract from analysts and pundits. The cost of managing communications should be added to the administrative overhead. Markets can be made or broken by opinion, and communications must be managed by an experienced team.

 
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