top of page

Navigating the Capital Raising Journey for Scale-up Companies: A Comprehensive Guide

Scale-up companies with compelling USPs or competitive advantages, scalable businesses and strong founder teams that have demonstrated sufficient market traction and product-market fit by way of annual revenue that exceeds £1m and annual revenue grows that exceeds 30%, often find themselves at a critical juncture in their growth journey. The decision to secure additional capital can be the turning point that propels them to even greater heights. However, embarking on this capital raising journey requires planning and execution. In this article, we'll take you through the strategic steps to raise funds successfully while maintaining your focus on scaling your business.


Preparation - Investor Readiness


Before you dive into the capital raising process, it's essential to ensure your business is investor-ready. This phase is all about meticulous preparation and presenting a compelling case to potential investors. Here's what it entails:


  • Strategic Business Review: This is vital to present your business convincingly to investors. Ensure your financial forecasts are based on solid assumptions that can withstand scrutiny. Often an advisor is helpful to provide independent challenge, to ensure your business model and financial projections can withstand scrutiny from potential investors.

  • Financial Model Review: Your financial model is a critical component. It’s sometimes helpful to seek professional guidance to align it with the preferences of potential investors.

  • Investor Deck and Teaser: Craft a compelling investor presentation that showcases your business model, financials, and your capital requirement. A one-pager teaser can pique the interest of potential investors.

  • Virtual Data Room (VDR): Your advisors will assist you in creating a virtual data room and the essential documentation to house it with that substantiates your business model, historic financials, and financial projections. This facilitates the due diligence process.

  • Distribution List: Collaborate with experienced advisors to create a well-targeted distribution list of investors. These are individuals or entities who will be approached on your behalf.


Distribution


Once you have everything in place, it's time to reach out to potential investors. Here's what the distribution phase involves:


  • Approaching Investors: Your advisors will initiate contact with the investors on your distribution list. They will present your business in the best possible light and showcase the opportunities it offers.

  • Seeking Letters of Intent or Term Sheets: The objective is to secure initial expressions of interest from investors. These letters of intent or term sheets outline the basic terms of the investment.

  • Negotiating Terms: Skilled negotiation is crucial during this phase. Advisors will work to secure optimal indicative terms for the potential capital raise while protecting your interests.


Execution


After receiving expressions of interest and indicative terms, the process moves into execution. Here's what you can expect:


  • Due Diligence: Investors whose terms you accept will perform financial, legal, and sometimes technical due diligence on your company. This is a rigorous examination of your business to ensure it aligns with their expectations.

  • Coordinating Due Diligence: Your advisors will play a pivotal role in coordinating the due diligence process with the investors or their management consultants. The goal is to minimize disruptions to your business-as-usual operations.

  • Access to VDR: Your virtual data room will serve as a valuable resource for investors during due diligence. It contains all the essential documentation they need to make informed decisions.

  • Legal Documentation: The final step involves negotiating the legal documentation, including either or both the share purchase agreement and financing documentation. Your financial and legal advisors will aim to align the execution documents as closely as possible with the terms agreed upon in the initial Letter of Intent or Term Sheet.


In summary, the capital raising process for a scale-up firm that has demonstrated market traction and product-market fit is a structured journey that requires careful planning and execution. By ensuring your business is investor-ready, reaching out to potential investors strategically, and managing the due diligence and legal processes effectively, you can position your company for success and secure the capital needed to fuel your growth. It's a journey that, when done right, can open up new horizons for your business.


Enquiries


For further information, please contact info@langdoncap.com


About the author


Sabbir Rahman is Managing Director of Langdon Capital. He has held prior roles with Morgan Stanley, Lazard and Barclays Investment Bank. He has executed over £60 billion in notional value of transactions across financing, M&A and derivatives with global corporates, private equity funds and financial sponsor groups.


About Langdon Capital


With a network of 700+ alternative investors, Langdon Capital raises debt and equity capital between £1m and £25m for high-growth and innovative scale-ups with >£1m annual revenue and >30% annual revenue growth in technology enabled and clean-tech sectors at Series A or beyond to help fulfil growth ambitions and paths to profitability.




This is not financial advice or any offer, invitation or inducement to sell or provide financial products or services or to engage in any form of investment activity.

11 views0 comments

Comments


bottom of page