How can I raise capital for my SME

In this article, Kevin Smith from BOOM & Partners outlines seven different types of fundraising available to SMEs and how to know when you are ready for investment

At one point or another, nearly every SME has had some sort of cash injection to get them over a particular hump. This can be to launch a new product, expand into a new market, or acquire the manpower needed to help the business grow.

However, when and the details of the investment can vary wildly. It is therefore important that when approaching fundraising, SMEs understand all the possible options so they can get their ducks in a tow and secure the best type of investment for their business

Kevin Smith is the Director of BOOM & Partners, a business consultancy. Kevin has 30 years of experience helping businesses source funding, scale, and grow. He will be hosting the Help to Grow: Management webinar SME financing options: what’s best for you? on Friday 24 May. In this article, Kevin outlines those options and how to know if you’re investment ready.

Types of fundraising

There are several types of fundraising and investment options available for small and medium-sized enterprises (SMEs). Here are some of the common ones:

Bootstrapping: this involves funding your business using personal savings, revenue generated from operations, or loans from friends and family. It’s often the first step for many entrepreneurs.

Angel investors: angel investors are affluent individuals who provide capital for a business start-up, usually in exchange for convertible debt or ownership equity. Angel investors typically take a large chunk of equity for an equally large chunk of cash.

Venture capital: venture capitalists are firms or individuals who provide capital to start-ups and small businesses with significant growth potential in exchange for equity ownership.

Crowdfunding: this involves raising small amounts of money from a large number of people, typically via online platforms. There are different types of crowdfunding, including reward-based, equity-based, and debt-based crowdfunding. This is best utilised with an easy-to-understand business model, e.g., product to consumer.

Bank loans: SMEs can obtain loans from banks or financial institutions, which can be used for various purposes such as expansion, equipment purchase, or working capital.

Lines of credit: a line of credit provides SMEs with access to funds up to a predetermined limit, which they can borrow from as needed. Interest is typically only paid on the amount borrowed.

Grants: certain government agencies, non-profit organisations, and corporations offer grants to SMEs for specific purposes such as research and development, innovation, or community development.

Private equity: private equity firms invest in private companies by buying ownership stakes, often with the goal of growing the business and eventually selling it for a profit.

Incubators and accelerators: these programmes provide funding, mentorship, and resources to early-stage companies in exchange for equity or a stake in the business.

Initial coin offerings (ICOs) and token sales: while more common in the realm of blockchain and cryptocurrency startups, ICOs involve selling digital tokens to investors as a form of crowdfunding.

These are just some of the options available to SMEs, and the suitability of each option depends on factors such as the stage of the business, its growth potential, and the entrepreneur’s preferences and goals.

Are you ready for investment?

Determining if your business is ready for investment involves assessing various factors to ensure you’re prepared to attract and effectively utilise investment capital. Is your business one that people can believe in? Is it unique? Does it solve a problem? And can you clearly demonstrate all this to potential investors?

Here are some key indicators that your business might be ready for investment:

Clear business model: ensure you have a well-defined business model that outlines your value proposition, target market, revenue streams, and competitive advantage. Investors want to see a clear path to profitability.

Proven traction: demonstrate that your business has gained traction in the market, whether through customer acquisition, revenue growth, or product adoption. This shows investors that your idea is viable and has potential for scalability.

Validated product or service: have a product or service that has been validated by customers or users. Positive feedback, testimonials, and sales data can all validate the demand for your offering.

Scalability: investors are interested in businesses that can scale rapidly. Show that your business model is scalable and can grow quickly with additional resources.

Team: build a strong team with complementary skills and experience. Investors often invest in the team as much as the idea, so having a competent and dedicated team is crucial.

Clear use of funds: be prepared to articulate how you will use the investment capital to grow the business. Whether it’s expanding operations, investing in marketing, or developing new products, having a clear plan instils confidence in investors.

Financials: have a solid grasp of your financials, including revenue projections, expenses, and profitability metrics. Investors will want to see that you understand your numbers and have a realistic plan for financial growth.

Legal and compliance: ensure that your business is compliant with all relevant laws and regulations. Investors will conduct due diligence, so having clean legal and compliance records is essential.

Market opportunity: articulate the size of the market opportunity and how your business is positioned to capture a significant share of it. Investors want to see that there is a large addressable market for your product or service.

Network and relationships: build relationships with potential investors through networking events, pitch competitions, and introductions. Having a strong network can help you access investment opportunities and navigate the fundraising process more effectively.

Pitch

Your pitch is your proposition to potential investors. If you can confidently answer all the above, you’ll have all the content needed to start creating that pitch. Kevin says that this should consist of three things:

1. Pitch deck: this is the hook. Your business in a nutshell. It’s typically a slide show and should give those you’re presenting to an idea of your business model, how much investment you need, what you need the investment for, and how much they will get back.
2. Strategy: if your initial pitch went well, investors are undoubtedly going to have lots of questions. They will want to know every detail about your business and how exactly you will achieve what you said you want to. This will take time to build but it’s crucial that you strike while the iron is hot and answer all of their questions about your strategy.
3. Presentation style: it’s all good having the pitch deck and strategy on paper but you will also need compelling words to go with them. Investors will need to believe in you as much as they believe in your business.
   

Kevin says that you can never practice your pitch enough. Good business leaders aren’t always good speakers or salesman. There will be plenty of investors out there who will have little intention of investing in your business but still take your pitch. Kevin says you will never know how serious the investors are, but you should still take every opportunity to practice new techniques in front of a live audience.

To hear Kevin go into more detail about raising funds as an SME, register for the Help to Grow: Management Alumni Network webinar on Friday 24 May SME financing options: what’s best for you?

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