Starting and growing a business is an exciting journey, but it often comes with tough decisions and critical crossroads. One of the most significant choices a founder faces is whether to raise investment for their business.
As the co-founder of Robot Mascot, a startup consultancy that specialises in helping entrepreneurs secure investment, I’ve learned that this question isn’t a simple ‘yes’ or ‘no.’ In this article, we’ll delve into the intricacies of this decision-making process and provide you with a comprehensive guide on how to proceed.
Should You Raise Investment for Your Business?
Let’s address the elephant in the room right away: not every business needs, or is suitable for, external funding. While I’ve authored a book on raising investment and run a leading pitch agency, I firmly believe that investment is only suitable for specific types of founders and businesses. As you navigate this decision, here are five key considerations to keep in mind:
1. Growth Ambition:
Investors are drawn to businesses with ambitious growth plans. If your vision is to create a lifestyle business that provides a comfortable income, investment might not be the right fit. Investors are looking for high-growth potential, with revenues often exceeding £15 million and sometimes even surpassing £100 million. While exceptions exist, your focus should ideally be on building a high-growth, performance-driven enterprise.
2. Exit Ambition:
Investors are motivated by substantial returns, which often come from company exits. If your goal is to run your business until retirement, investment might not align with your vision. Investors seek opportunities to sell or exit the company within 5-7 years. While options like partial buyouts or IPOs can provide exit opportunities for investors while retaining founder ownership, the absence of exit ambition could deter potential investors.
3. Valuable IP:
Investors are interested in businesses with not only revenue potential but also valuable intellectual property (IP). This encompasses more than just tech companies; it includes valuable methodologies, product formulations, hardware, software, and internal systems. At Robot Mascot, we’ve successfully secured investment for a range of businesses across different sectors, including software, hardware, FMCG, food and beverage, and hospitality.
4. Market Opportunity:
While brilliant ideas will prosper, investors also assess market potential. Your growth ambition might not be achievable if you’re targeting a niche market. Investors often seek opportunities where the potential for significant growth and substantial returns can be achieved with just a 1-10% market share.
5. Profitability:
Historically, funded businesses have prioritised growth over profitability. However, this landscape has evolved. Startups (like Uber) took millions in investment to achieve huge growth very quickly but were unable to make a profit for many years. As a result, they raised more than $25bn over an 11-year period (2009 – 2020) to sustain the business growth. In recent years, they have reached more sustainable profitability. This approach to investing is all but over. Investors now look for a path to profitability within 2-3 years post-investment. Following this, more investment can be obtained for further growth.
How Do I Raise Investment?
If you’ve assessed these considerations and believe investment is right for your startup, the next step is to prepare effectively. You’re entering a competitive landscape, and to stand out, you need three critical fundraising assets:
1. Pitch Materials:
Your pitch is your first impression on investors. It should provide a high-level overview of your investment proposal, capturing your vision and igniting interest. At Robot Mascot, we’ve seen the power of a compelling pitch in capturing investor attention.
2. Financial Projections:
Investors want to understand the financial journey you’re charting. Projections map out spending commitments, customer acquisition, revenues, and profits over several years. These projections should encompass metrics like cash flow, burn rate, and cost per customer acquisition, reflecting your business’s current and future performance.
3. Business Plan:
Your business plan is the backbone of your strategy. It showcases your understanding of your idea’s commercial viability and the path to success. This plan should outline your company’s current state, future direction, and how you intend to reach your goals.
These three assets are interconnected. A well-crafted business plan informs your pitch and financial projections, enhancing your overall credibility. By addressing potential investor queries within your plan, you’re better equipped to impress during presentations.
Final Thoughts
As you contemplate raising investment, remember that every business is unique. Your decision should align with your goals, growth ambitions, and the nature of your startup. Keep in mind that Robot Mascot’s expertise lies in guiding entrepreneurs through this complex landscape. We’ve assisted startups from various sectors in securing funding successfully.
Ultimately, whether you choose to raise investment or not, the journey you embark on is one of passion, dedication, and growth. Take the time to weigh your options, seek advice, and make a decision that propels your business toward its true potential. Robot Mascot is here to support you every step of the way, offering insights, strategies, and the expertise needed to make informed choices for your startup’s future.
We host regular fundraising strategy sessions where we support founders considering raising investment. They’re completely free, and we’d love to see you there.
This article was written by James Church of Robot Mascot, the UK’s leading pitch agency.
