It wouldn’t take a lot for you to find articles about institutions, individuals and initiatives that are promoting the concept of “business funding”. But take a few extra minutes to sort through the parade of promotional funding help, and you’ll soon identify a couple of things that make the search for business funding slightly less exciting. So, to help you along your business growth journey, we thought we’d share a few home truths.
Barrage of Help: But at a price
Financing a business is viewed by many people starting out on their own business journey, as a necessity for growth and expansion – but there are a number of risks naturally associated with financing a company from any source other than earned income. And when you’re not entirely sure what those risks may be, trying to wade through the barrage of SOS Offers from Angels and Dragons and Banks and Crowdfunders – funding of any kind very quickly becomes a hassle, rather than an opportunity. Every investment opportunity is different – some investors simply want a piece of the pie you have on offer without much involvement from themselves, while others prefer to be hands-on almost throughout. And in the world of startups, that’s even more relevant. However, what happens when you’re beyond startup? What happens when you desire business growth on a model that is proven, a return’s book that is solid, a customer base that is recurring? Well, that’s when investor interests increase, but so do their expectations. And why is that? Simple. There are far fewer organisations and investors that can write a cheque for £10m+ than they can for £2m – £5m. If you’ve made it through your Series A round, the chances are you’ll be getting a lot of interest from investors who missed out on the opportunity to be part of your growth. At Series B, you will probably have a proven product model in the market already which means that you have an existence to speak of, when seeking investment. However, it doesn’t mean it will necessarily be easier for you to obtain Series B funding – it simply means there will be a lot more expected of you.
Know your A, B, Cs – funding series, that is.
It is very likely that your Series A funding will take far longer to achieve than your Series B round. Sound good? It probably is. But just because Series B appears to be a quicker, surer thing – it doesn’t mean it’s anything easier. Hugo Grimston, the CFO of Paddle, a platform providing checkout and licensing software to businesses wanting to grow and sell their products worldwide, puts one of the key differences between the two down to this: “At Series A, the focus of the VCs is all on the founders. By Series B the team that the founders have built around them becomes more and more important. Scaling a company from one to 10 people can be done force of will alone. Building a team of 50 to 100 people and beyond requires real leadership and a strong supporting team.” Hugo also goes on to suggesting that due diligence gets much more intense as the cheques get bigger, and as you move from Series A funding to Series B and onwards. He advises businesses who are just starting out to be prepared to share detailed customer information, and even to have investors meet key people at the company and even call on specific customers too.
Understanding the critical differences will go a long way in helping you strategically prepare for your funding strategy.
Understand the model and how you’ll be measured
The entire point behind Series B funding is to help businesses scale up, quickly. The more your business is planned and worked out, and able to demonstrate proven sales, and market success, the easier it will be for your investor to visualise how their capital will grow, through your business. So, before you contemplate Series B funding, it’s really important that you are aware of, and can answer to a few critical questions:
- What does it cost you to acquire a customer?
- How long is your typical sales cycle?
- How long does it take for your sales team to ramp up their activity?
- What are your lead volumes and how are you driving them?
- How much are you paying for a qualified business lead?
You may not have all the answers to the above, but you will certainly need to demonstrate an active understanding of your sales journey in terms of cost, time to close, and reward. The more you are able to demonstrate the potential for growth, the more your investor is likely to put their faith in your business strategy. Even if you’re nowhere near Series B funding yet, best practice would be to start implementing some of these measurements and metrics into your business today – so that when the time comes for you to scale, you’ll be ready to.
CFPro Ventures bridges the gap between businesses seeking growth opportunities, and the investment community, through providing business support and infrastructure that enables exponential business growth. If you need help with your Series B funding, then talk to us.