Raising capital is a hot topic in Belgium, and with good reason. It is highly important and often very challenging for entrepreneurs. The experts of VGD audit, tax & accountancy give their insights in how to navigate across investment opportunities.
As accountants, we are often privileged to see ventures scaling up. Today, an increasing number of young SaaS companies, that having realized their early-stage innovation, are evolving towards establishing a pricing model. When scale-ups are looking to seize new opportunities and new markets with a view to growing their potentials. In both cases, a capital contribution is needed to achieve these goals.
Raising capital is indeed a hot topic in Belgium, and the government responds to it too. Recently, the Belgian Minister of Finance, Johan Van Overtveldt, confirmed his interest in fast growing start-ups and their funding through specific private funds.
But before taking the steps to initiate an investment case, it is important to formulate the clear answers to the following 4 investor readiness questions.
ARE YOU READY TO CHOOSE BETWEEN "KING" OR "RICH"?
Raising money necessarily implies that you lose some control to the benefit of an investor, and this is more difficult than it seems. Matters you could previously decide by yourself, now may have to be submitted to a board. In addition, you are obliged to set your goals and actually fulfil them. So, all of a sudden, it may feel as if you are working for a boss. But you cannot go looking for a new job.
Not every entrepreneur is able to assess the impact of that beforehand, and not every entrepreneur is ready for it.
Growth also means that you delegate more responsibilities to a team. It becomes your role to set out a strategy, but you will no longer be able to steer your own business operations as you did before. For entrepreneurs, who singlehandedly set up a business, this is much more troublesome than they could have anticipated.
So, you really need to know, whether you want to be “king” or “rich”.
IS YOUR MIDDLE MANAGEMENT READY TO TAKE YOUR BUSINESS TO THE NEXT LEVEL?
To raise capital, everything should be in sync: your product or service, obviously, but also your story (marketing and sales) and your people.
If you get those things to match nicely, you should have all ingredients to make a good case for an investor. We call it a four-leaf clover - if you have the three leaves (product, story and people), the fourth leaf is usually easy to come by: the investment itself. If not, you have work to do.
In practice, the major bottleneck is often “people”, i.e. middle management. Raising capital externally undeniably means that as an entrepreneur you will need to rely more on a motivated and competent middle management. You would not be the first entrepreneur to blow up the engine driving his business by stepping on the gas too soon.
So, make sure you can persuade an investor of the quality and the motivation of your middle management, and reinforce it if necessary. VCs sometimes say: “the ones who got you here are not necessarily the ones who will get you there”. The people who got you where you are, are not always the people who will bring you another step further.
You should consider your middle management’s strengths and weaknesses before you start raising capital. Once you get the investment on board, you and your team will have to change gear very fast.
Besides a good middle management, you can do yourself a big favour by working on your administrative organization and following up on the different administrative processes prior to starting up a capital round. Today you can digitize and automate a large number of processes.
Given today’s cloud platforms supporting all kinds of administrative processes, there is no reason for you to opt out of online and real time data processing and administrative follow-up. In fact, real time dashboards (built on accounting cloud platforms, such as Exact Online) allow businesses to forecast their cash flows much more accurately, and considerably speed up the decision-making process relating to the search of extra funds with investors, banks or the government.
If you still need to take all of these steps after having raised the funds, you will lose precious time.
KNOW HOW YOUR DOMINOES SHOULD FALL
The fact that you are ready to play at a higher level is not simply because your business is thriving nicely today.
An investor expects an entrepreneur to have a very clear vision. How is the market evolving? How exactly will the extra capital contribution create value for your business?
A concept paper setting out your vision is crucial. An investment case is about more than figures, it is an investment assumption for investors.
Why will your investment deliver a return? What are you seeing in the market that competitors do not see? How will you scale up your production? How will you find suitable people? How will you activate marketing and sales?
Also take a look at the risks your shareholders structure may entail. With SaaS companies that go from one capital round to the next, there is a danger that the founders’ shares are treated as dilutive, so that they lose interest. What will you do if the CTO and the co-founder resign within a year? Will your business collapse like a house of cards?
ARE YOU READY FOR A GROWTH SPURT?
Raising funds may take time. It can take half a year or longer as from the moment you hit the road until the money is in your company’s bank account. However, preparing your case should be done in 1 to 2 months.
We still see too many entrepreneurs, who get stuck doing their day-to-day business: first do this and then that…
As an entrepreneur, you have to be prepared to fully focus on your financial case for a short period of time. If not, you risk being overtaken by events. Sometimes, as an advisor, we feel that some cases will most probably never get anywhere.
Before you start building a financial case, make sure that your company keeps running smoothly, so that you can withdraw from operations for a while.
Once you start building your case, see it through till the finish. It does not make sense to hit the road with a case that is unfinished. The world of investors is very small. An entrepreneur who is peddling his case risks being talked about: “Did X also present his/her dossier to you?” “Yes, but they are not there yet…”
Decide for yourself beforehand, whether you want to commit yourself fully or not. If you decide to go for it, then apply yourself to it and go the full distance.
Collaborative cloud solutions may offer the support you need. They facilitate collaboration between different parties working on a case, and make sure that all information is accessible in one and the same place.
Patrick Janssen, ‘investor readiness’ coordinator with VGD, assists business leaders in their search for capital and the right investors to realise their start and growth projects and to expand their businesses into international markets.
Charlotte Pille, accountancy business line manager, leads the VGD offices in Bruges and coordinates the expansion of the accountancy business line across VGD’s offices in Brussels and throughout Flanders.
VGD audit, tax & accountancy is a full-service professional organisation of auditors, accountants, tax consultants and corporate finance advisors offering multidisciplinary and integrated solutions.