The Fundraising Process for Equity Finance
In its simplest form, obtaining equity finance requires:
- Preparation of a robust business plan
- Identifying and shortlisting target investors
- Negotiation of a mutually acceptable Term Sheet.
This requires discussion around the potential valuation of the business, the relative shareholdings required by the investor(s), and the terms for the investment (such as having representation on the Board or having preferential rights to follow on investment).
| Business stage | Prepare business plan |
Define preferred deal structure |
Identify target investors |
Negotiate outline term sheet |
Complete due diligence |
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In the process of these discussions the potential investor will inevitably undertake considerable due diligence on the company, and request significant amounts of data and supporting evidence. This can be a daunting experience for companies undertaking this exercise for the first time, and typically requires both parties to be prepared to compromise on some aspects of the deal.
Critical success factors include:
- Demonstration of a clear and defendable innovation
- High quality of the delivery team
- Substantial evidence of market need
- A clear investment case, including exit strategy.
Aligned with these factors are a number of key barriers that young businesses face, including:
- Recruitment of an appropriately skilled management team
- Understanding the investor's perspective
- Delivering proof of both technology performance and market demand
- Developing IP that is clean and robust.
Support and advice in addressing these and other barriers is available from a number of intermediary and professional organisations (see Where can I get further support?).
A significant amount of support and advice on fundraising is available from third party organisations and independent websites, some examples of which are given below.
Please note this list does not constitute an endorsement by the LCVP of any particular material or organisation and the LVCP takes no responsibility for content published by other parties.
Guides from mentoring organisations: Business Link offers a Business Plan guide developed with the National Federation of Enterprise Agencies.
You may also get support from initiatives available to businesses within specific Regional areas:
South East: Finance South East & Enterprise Hubs
Books such as:
- 'How to Write a Great Business Plan', by William A Sahlman, Harvard Business School. Published by Harvard Business Review Classics
- 'How to Prepare a Business Plan' - Sunday Times Business Enterprise Guide. By Edward Blackwell.
Independent websites often offer standard templates and links to relevant articles. See for example:
www.businessplanhelp.co.uk
www.bplans.co.uk
www.bvca.co.uk
www.bbaa.org.uk