Increasing numbers of new businesses are searching for funds; coupled with the investors looking for the right business which will bring a good profit. We discussed with Dirk Röthig, an investment specialist from Germany. What are the goals, what are the probabilities for new businesses and investors and what should you do as a future business to find your matching investors?
How difficult is it to raise funds in 2018 and do you see a difference in the nearer future? Startups and investors and what should you do as a startup to find your investors match?
Raising fund is not easy work. As often, it rests on the notion, the business, the area, the accompanying risk and a lot of other unrealized deal brokers. However, there are lots of liquidity easily converted to cash in the market, and for most works, I could gather some money for most of the works I collected.
What are the most significant errors upcoming businesses and companies make when raising funds?
These people begin to think in the wrong way, like “What is the investor looking for?” More significant is for them to think about what to give. It is a lot difficult to discover the things going on in investors’ minds, but the more believable an investment tale is, the more absorbing it is for the investors.
When raising money from a Venture Capitalist, how long does it take?
To get funds from a VC, it requires at least 6 – 9 months. A long period of decision making, long due perseverance, and steps in contract drafting makes it a very long lasting target. It is not the most rapid and swiftest way of raising money, and not every business notion is made for VC’s.
What is the most excellent method to acquaint yourself with a potential investor, before the official meeting?
Be real, practice with close friends and investors before meeting a real investor, don’t be rigid, make compromises where necessary but remember not to succumb the idea or identity. The tale has to be thoroughly straightforward, understandable and simple for everyone. You need to have the ability to brief your investor within two minutes in the lift.You can have the most wonderful idea in the universe, but if the investor doesn’t find you likable as a person, they will not put their fund in your business.
What do you advise, to be portrayed as a great first impression at the first meeting?
Be yourself. Don’t try to suit the investor. If the investor doesn’t find you likable, you will not be invested in obviously. If the investor likes you due to a role you act out, he may like you for that period, but eventually, he still has to work with the real you – and this really you, he does not like!!!
Money only doesn’t prove a solution at all, what are the errors that companies make after they have the funds?
Most times, money isn’t everything upcoming businesses need. They might lack skills, experience, the people necessary for their business, etc. So, most times, it is not the investor alone but also a group of people to manage the startup or a business guru that is needed.
Some firms are worried that raising funds through investors results to losing hold on their firm, what can be done to prevent that?
This is a typical incompatibility of interest between investors and new organizations. It is challenging work. The best solution is to look for a cognizant advisor who can recommend more refined ways and contractual options. After all, it is better having 49% from something that a 100% from nothing at all.
How do companies value their company before the investment?
Most company owners do overvalue their company. Generally, you can use the common ways of valuation, but be mindful that without additional cash, the company will either progress at a very slow pace or go bankrupt. Therefore, the status of the investor is usually very powerful.
It is said that it requires less effort to raise 50 million euro than 100K euro, why is this?
It is equivalent to saying ‘‘to make the first million is the most burdensome”. If your company is large enough for a big institutional fund and in need of 50 million, you must have been a success already. It is a lot of liquidity in the institutional money market. Pension money, insurances…. are all very eager for new worthy investments. Together with the right people, it is less difficult to gather 50 million than 100k.
These days, you have so many distinct methods to provide funding for your company, is the part played by the traditional bank to get a loan finished?
The bank gets a role when you want a working capital in the normal business course. They don’t involve in risky transactions and they don’t wish for equity risk in your company. I have not seen a company which has had the ability to finance their progress with a bank loan in the last 15 years.
Investments are now a worldwide thing, you can have it from all over the universe, but majorly for smaller companies, I would say stay near your origins and find a local method of finance. What is your say about this?
Pecunia non olet, I don’t worry about the source of the money, unless it involves political risk, like Chinese or Russian money. Consequently, it might be less difficult for the owner to source for a fund in their own country, but if the money isn’t available, I would accept from wherever it comes from as long as it doesn’t give a cause to worry.
Some investors dislike not only the financial status but also the location of residence and your juridical position as a company. What do you advise, should entrepreneurs be more flexible about this even though it might result in relocating to another country?
Yes. What is important is the notion and that the business progresses; it is less significant if it progresses in the UK, Germany, Netherlands or France. If the investor requires it for reasonable cause, then move!
What is the conclusive advice you can give a company before they are planning to get financing?
Find a fundraiser and adviser with a wealth of knowledge. Someone with a glowing record, who knows the right people and is experienced.