May 28, 2024
For any firm offering growth consulting services, equity funding consulting services, or even private equity consulting services, one of the core principles of raising capital lies in helping MSMEs answer a simple question. That is especially pertinent for investors, given current times of macroeconomic uncertainty. Forget interest rates, valuations, and all of that jazz. The question, dear readers is all one singular idea—” Why should we invest in you?” Answering this question demands extensive research and a deep understanding of your fund’s investment strategy. However, worry not, for we have a well-out fundraising guide in this article to help you develop a thoughtful and compelling response.
Why should Investors invest in you?
Before addressing the question, or seeking the help of growth consulting services, equity funding consulting, or private equity consulting, you need to understand why investors are interested in MSMEs or startups in the first place. The key motivation for investors would be initially to buy stakes or ownership in the startups or MSMEs. This means investors buying equity, in other words, investors would consider investing in a company to own a portion of it and expected returns from future profits. This way of issuing a part of your company’s capital and getting some money in return is called equity financing–a method that is beneficial for both parties.
For investors, providing capital establishes a partnership where they receive returns proportional to their equity if the company becomes profitable. On the flip side, if the startup fails, realizing a return on investment typically involves exit strategies. High-growth startups with excellent management and organizational processes are more likely to be exit-ready sooner. Venture Capital and Private Equity funds, in particular, need to exit all their investments before the end of the fund’s life to realize their returns.
Coming to the company, be it an MSME or startup being invested in, the main advantage of equity financing is that there is no obligation to repay the money acquired through it. There are essentially no payment debts or interest charges. If you want to know more, you can visit our previous article on the topic of “Key Steps to Raise Funds for Your Venture via Equity”, where we dive into the complexities of equity financing as well as private financing, ensuring that your capital-raising process is smooth and successful.
What do Investors look for in MSMEs and Startups?
Investors, in most cases, look into some key aspects when evaluating startups and MSMEs that they want to invest in:
Firstly,
They seek companies with unique offerings that address specific customer needs or problems. However, equally important is understanding the market landscape, including the market size, obtainable shares, and forecasted growth rates
Secondly,
Scalability and sustainability are also vital, as the companies should have a clear potential to scale and a stable business plan. To this end, competitive analysis plays a critical role, especially when it comes to understanding the market players, their shares, and other factors.
Thirdly,
A comprehensive financial assessment is essential. This should outline cash inflows, required investments, key milestones, and growth rates. It should also include potential exit strategies that add significant value for investors.
Raising Funds for equity investing:
As mentioned previously, there are various advantages of equity financing, especially for MSMEs and startups. Because equity is something you sell, it means you would have no debts to pay off, as well as no repayments. Furthermore, equity financing also differs from debt financing in such a way that a poor credit history usually doesn’t hinder you from getting equity investment.
That being said, let also me talk of the negatives; well, some facts in actuality, which need you to be cautious of. The first would be the effort that goes into instilling investors with confidence. This entails showing them that your business will not only survive its first year but also deliver a worthwhile return on their investment. Moving forward, the second disadvantage would be loss of control, as each time you bring on a new equity investor, your ownership of the business becomes even more diluted. As your business starts to grow, you would not only need to share the ownership but also would have to share profits as well.
Raising Funds for Equity Investment Strategically:
Now that you understand all about the pros and cons connected to equity finance, here at ScaleX Solutions, we give you a comprehensive guide on how to get funds for Equity investing.
Step 1:
The first step in this regard, and often an underrated aspect when it comes to raising funds for equity investing, would be to understand what success looks like for you. To this end, ask yourself the following questions— “What kind of investment are you seeking?”, “What percentage of your business are you willing to let go of?”, “Are you looking for guidance from investors beyond the initial investment?” There are but a few questions that serve as a litmus test–especially for the clarity of your plan. Nevertheless, if uncertainties persist, then worry not, for this is precisely where ScaleX Solutions’ growth consulting services excel. With a clear roadmap in place, and investment in the bag, execution with ScaleX Solutions becomes a cakewalk.
Step 2:
The next step in this process is often the most overlooked aspect of raising funds. What is that you ask? Well, we are talking about extensive research, documentation, and accurate projections. For you see, your business plan should transcend mere mental conception; it must materialize into a tangible document. Otherwise, it holds little value for potential investors. That said, do not worry about finding investors–that is the easier part. And with equity funding consulting firms like ScaleX Solutions offering growth consulting services, finding active and interested investors becomes a whole lot easier.
Step 3:
Once investors are in place, now comes providing them with an offer they cannot refuse. That, dear readers, begins with an immaculately prepared presentation. But to achieve perfection requires diligent practice, particularly in highlighting your most compelling details and Unique Selling Propositions (USPs). And once your pitch is flawless and has captivated investors, bolster it with evidence—for most interested investors would want to perform due diligence. So being prepared is a big plus.
Step 4:
Last but not least, as the success of investment in your company becomes assured, attention turns to the critical aspect of the partnership agreement. Remember that this agreement must work for all–and that that includes you, your investors and your business. Having a strategic long-term plan of action in place. To this end, with ScaleX Solutions by your side, together we can demonstrate to both investors and yourself that your business has the potential to achieve the success you envision.
Final Words of Advice:
The raising funds process for equity investing is all about preparation. Why we say so is because investors, more often than not, seek comprehensive, well-presented information laid out before them in the best manner possible. This allows them to make swift decisions. And for that to happen, Contact Scalex Solutions, with its array of offerings including growth consulting services, equity funding consulting, and Private Equity Consulting, emerges as your perfect partner. By assisting you in addressing every detail well in advance, we ensure that you are thoroughly prepared for success–even before approaching investors for funds.
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