Thinking of raising capital? Make sure you consider these 6 things before you do (Part 1)
Many of my clients make the mistake of trying to raise capital when they are not ready. Essentially, what ends up happening is that they fail to raise capital, they get discouraged throughout this processor they fall short of their capital raising target. This process is not easy but if you understand exactly what you need to do and follow it, you will find that you will raise more capital and the process becomes much easier. How I like to think about it is to take the outside approach and look in. If you were an outside investor, what would you want to see in a business in order for you to want to invest? With this train of thought in mind, at MGA we believe that these six areas must be supported in your pitch deck in order to show potential investors how valuable your business is:
Sales:
The first thing to consider is your sales. This may seem basic but the foundation of every business is sales; without it, you can't survive. In this way, you must show your investor that you have adequate sales, preferably sticky revenue, and a future sales pipeline. The investor's concern is that your revenue is not recurring and therefore at risk of fluctuations or downturns. Your business must be able to show that its top-line revenue is sustainable and growing. I like to use McDonald's as the perfect example of what a business should consider when looking to raise capital. From a sales perspective, McDonald's are killing it. They are the largest fast-food chain in the world, their sales are consistent and solid, and most importantly, their pricing model is based on demand ratios. From an investor's perspective, the sticky revenue, solid price models, and proven track record provide comfort.Most start-ups don't have this type of profile however, the principles mentioned above should be used as a guide for how you should think about structuring your products and services.
Marketing and Branding
Many people often underestimate the importance of marketing and branding. From an investor's point of view, they want to see that your brand is clear, that you differentiate yourself from others, and that you know what you stand for. It is important to make these distinctions in your pitch deck to provide your investors with the comfort that you know where you stand in the market and you differentiate yourself in it. In regards to branding, one thing that sets McDonald's apart from their competitors is the continual upgrading of their facilities. They have invested significantly into contemporary retail outfits that allow them to attract a different demographic.This uniquely sets their brand apart from the other fast-food chains. In the same way, many new businesses must also think of how they can stand out, in order to convince investors that they can compete and succeed.
People
Another area that is often overlooked during the capital raising phase is the people aspect. You may have a great product, high potential for growth, and strong branding however the wrong staff will eventually lead to the poor execution of your plan and strategy. From the perspective of an investor, they will want to know that management is credible and experienced. They will ask, "Do you have the right staff? Do they get along or is there disunity? Is the right leader on board to take the company to the next level?" All these considerations must be addressed in the pitch deck. As you can tell, I love McDonald's, not only their food but also their business model, and they have an interesting staffing model. The minimum age of their staff is sixteen years old, which allows them to hire relatively cheaper staff however, young staff also means high staff turnover and a strong training regimen. McDonald’s have mastered this system and have an exceptional training program for their young staff, who end up being very well trained hospitality staff. The right staff matters so make sure you iron this out in your pitch deck.
These are just the first three points, so make sure you tune in to the next blog to get advice on how to complete your capital raising mission. It is not easy but I firmly believe if you consider all these factors, you will have a successful capital-raising venture.
I trust that this blog can help you and if you are keen to level up your business and be part of our Phamily at MGA, feel free to contact me and we’ll get your mission to grow your business started.