Investors need to know that you have looked beyond the first round of funding.
They need to understand that you have run rate that will take you past breakeven and allow you to prepare for Series A or Institutional Funding prior to exit.
Many founders come to us and they are keen to raise £150k but have not looked beyond the SEIS round. Others come looking for £1m but not really needing £1m immediately.
Instead of thinking about the amount you want to raise, think about the evolution of your company. In other words, what milestones are you going to achieve at 3 months, 6 months, 12 months 24 months etc.
Then think about what resource you need to achieve those milestones within the targeted timeframe, and how much money is required to achieve each milestone.
Your company evolves over time and a good company has a solid business plan with key objectives, milestones and timescales.
Your funding plan should be a product of that – in other words, it should correspond with the business objectives, milestones and timescales.
It should clearly show the investors that you have a grip on exactly how much share capital is required in the business at specific, crucial times of the evolution of the business.
A well-thought-out funding plan covers not only the equity requirements of the business, but it should also consider all of the other funding options available to businesses these days.
As an investor, people want to know that you have looked into all areas of potential funding for the business.
Are there grants available? Can you “Bootstrap” and to what level? Have you covered off any potential R&D Tax Credits? Can you do some invoice factoring or are there some cheap debt options available to you?
The type of funding you receive is as important to your overall funding plan, as the timing of the funding.
Consider the following things when you are working out your funding plan:
- What funding options are available?
- What are the business milestones/targets and how much do I need to achieve them? As an example, how much do I need to build out the tech and when will that be completed?
- When are these milestones in the evolution of the business?
- When will I get to breakeven?
Then sit down and put numbers and timescales next to these things. By doing this, you will be able to set out a more realistic and achievable funding plan and timescale.
Instead of asking for £1m from the get-go, which is a big ask in the current climate, you may realise that all you really need to kick things off, might be £150k SEIS to achieve x, before going on a further funding round of £350k to achieve y.
Then you have the funding in place to achieve the things you need to achieve in the business, in order to go out for a final seed round of £500k to take you past breakeven and into profit.
Ultimately, this will then allow you to get in front of your Series A funders and beyond.
Having a proper funding plan will show investors that you have really thought about the journey and you have a handle on your funding requirements and most importantly control over your cashflow throughout.