Boriana Valentinova

Green investment

Why do some start-ups raise capital and others don’t?

Raising capital is not a new goal. It has always been a significant stepstone in business growth. However, since the uprise of start-ups, raising capital is not only needed for survival; it has become a trendy topic.

So, success and failure in start-ups have been attributed primarily to whether or not a company manages to raise capital. But the real question is how some companies succeed with financing while others (apparently as good as the winners) do not and consequently have to close down and dissolve. There is no magic or mystery; investors are pretty straightforward people. They expect something in return. And we can summarise those expectations in 4 main points:

So what does it take to fulfil all these expectations? It comes down to 6 main pillars you need to have or at least have a realistic plan to put in place.

Right timing to raise capital

Innovation is about timing, and timing is about having the right idea at the right time. The right timing is how the comedian makes you laugh, how a beloved one surprises you with a treat, and how a business satisfies its customer expectations JIT. It is about catching emerging trends as quickly as possible. A business idea is not good if it surges too early, so you must educate the market too much or too late when the competition is ahead of you.

The economy of scale

Investors look out for companies that can scale and make attractive investment returns. Often founders will be faced with the true meaning of a star-up; you either scale x10 quickly and efficiently, or you’re another SMB. The reality is if every sale you make requires the same or similar amount of time and effort as the previous sale, your business model is not scalable. That doesn’t mean your business model is bad or wrong. That means that your company is growing, but you’re not scaling. Scaling means with a suitable investment, you can reach and convert from 10 into 100 customers and then roll on into millions of users without increasing costs in the same exponential fashion.

Business structure

Even if you had an innovative idea and an economy of scale, you can’t possibly grow if you don’t deliver. And you won’t be able to deliver if you don’t have the proper organizational structure. Start-up founders face a peculiar challenge in fulfilling this commandment. They start a business based on flat networks with team spirit, trust and Cammarata. This kibbutz-inspired way of working has to change and develop into a structured and hierarchal organization with clear roles and responsibilities, SOPs and a governance model. Decision-making must be based on data and advisors’ recommendations, not on guts and favour.

Lean Processes

Continuous improvement principles got it right: if you want to sustain something, make a habit, and to achieve that, you have to standardize it first. However, you can’t possibly standardize something volatile that changes frequently and depends on manual work. So with growth, you have to work on your processes to correct deviations, automate them and guarantee the service levels your customers expect. Then train your teams. And as your customer demand changes, review processes, redesign them, standardize and train people again. This ongoing continuous improvement is what guarantees your efficiency in the long term. I always recommend 4 E2E processes to control the business operating model: O2C, S2P, NPL and H2R.

Team

The team is probably an essential part of the business venture and the one investors scrutinize as they have to decide if they can trust. Without the right people on board and trust, it is difficult, next to impossible, to grow and raise capital. Business founders need the right skills, knowledge and problem-solving in their teams. Sometimes, they need to make a trade-off as they don’t have all the budget to hire all the required headcount. In that case, founders must develop sequential planning to expand the team in the future and thus convince investors.

The right team guarantees that the right business growth strategies will be in place when needed. So, the start-up will achieve the expected KPIs: sales, market penetration, IT infrastructure, talent, supply chain and distribution agreements, customer care, financial analysis, etc.

Exit Plan

What if… is the $1M question often asked during fundraising. What would happen if the business idea goes busted despite all the correct planning? And what guarantees can you provide? Most venture capitalists insist on seeing a carefully planned exit strategy in a business plan before committing any capital. So, it has to be prepared and explained as part of a risk assessment. Exits plans vary from planned termination of operations and liquidation of all assets, a strategic acquisition, to IPO. Bankruptcy is seen as the least desirable way to exit a business.

Beyond ROI

We live in a world that strives to make itself a better place. We are focused on sustainable development, from decreasing poverty and hunger to affordable, clean energy and climate action (17 SDGs)

Many investors seek to address global challenges and look for opportunities to help or make a difference. This is a tremendous opportunity to position your business in the eyes of the investors and help shape a better future for the niche you specialize. Every drop counts. So, add yours by incorporating any of the 1y sustainable development goals in your business model. It will help to raise capital.

To sum up:

Raising capital is a process that requires you to provide guarantees to investors. The way to can offer those guarantees is by having a sound and competitive business model that is flexible enough to scale efficiently. You need all 6 pillars in place to do that, and part of them is helping make the world a better place☺️.

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