Growth · Traction

Best way to raise money for a company with years of history?

Mike Lingle Entrepreneur, I help startups start up

December 12th, 2016

I'm often asked to help companies with 5+ years of history raise money. These companies have done a bunch of work and are poised to grow quickly, but their history works against them if it wasn't high-growth. Investors often want to see hockey-stick growth right out of the gate.

What's the best way to present these companies to potential investors in order to focus on their current high-growth potential?

Todor Velev Managing Partner, EEI Network

December 12th, 2016

Probably you can follow one fairly standard approach: the situation (how was the company one year ago); the complication (what changed so that they started to grow); the solution (how they will further leverage this opportunity and if it is sustainable). It might even fit on one slide :) Todor Velev Sent from my mobile

Mike Robinson

December 12th, 2016

Mike, the answer lies in clearly expressing the reason for raising capital at this moment in the company's history. Has something important recently changed? Have they suddenly found product-market fit due to solving a very difficult problem or due to some change in the business environment?  Did they sign a big contract with a major partner? Has some law or regulation passed that mandates people using their solution? You get the picture. Tell us why NOW is the inflection point for this company. 

The reason investors are leery of companies with years of history is that sometimes those companies are "walking dead" but they want to raise money now because the founders have run out of cash and want to get paid. That would be a not-good reason. You need to clearly articulate why this company has been flat for 5 years but is now poised to explode.

Chuck Bartok Social Media Consultant, Publisher, and Contrarian Curmudgeon

December 12th, 2016

What is the reason for capital need?
Infrastructure, inventory, marketing?

Martin Omansky Independent Venture Capital & Private Equity Professional

December 12th, 2016

Interesting question. Many firms have this situation. There are a number of answers, but one size does not fit all. Most firms in this category go to lenders (banks, finance companies, etc.) for expansion capital, and become beholden to those lenders, especially if the firm's predicted expansion does not meet expectations. Other firms such as you describe raise expansion capital by structuring the securities offered appropriately. This usually means committing to return investors' capital on a first priority basis, plus a substantial share of future profits. Easily said, of course. The investors I know usually look to see if a firm's expansion plan includes some advanced technical improvement, new product line, new market opportunity, etc. Competition for risk capital is intense, and firms with solid prospects will always be preferable to firms that just want strips of new capital to do the same old thing. As I said, however, there is no one solution to this problem. Best policy in my view is to expand the firm by re-investing some of your internally-generated profits. This might be a slower approach, but it might preserve your independence and rationalize your decision-making. Sent from my iPhone

Mike Robinson

December 12th, 2016

Arthur brings up a good idea - royalty-based finance (or even receivables factoring). But that is only relevant if this business suddenly has lots of traction. Most royalty-based finance funds want to see $3M-$5M run rate with high growth potential.  It sounds like these companies want to go after Angel money, which probably means there is no guaranteed revenue stream.

@Mike Lingle - there probably is no blanket answer about how to raise money for a company with history. It's going to be a very case-by-case process. But the one consistent factor is that you need a really good reason why NOW is the time to invest. What "just happened" that is going to make this company start growing fast when it has been flat for years? Why was it flat so long and why do you believe the future is certain to be different from the past? 

Mike Lingle Entrepreneur, I help startups start up

December 12th, 2016

These companies aren't big enough for PE yet. They're looking for investor money to grow, and are targeting angels and/or VCs. The issue is that these investors tend to not like companies with years of non-growth history.

So how to position to tell a new growth story in a company that's been around for a while—but has only started high growth in the past year?

Arthur Lipper Chairman of British Far East Holdings Ltd.

December 12th, 2016

Sell a percentage of revenue for an agreed period and keep the equity.

Jaf Siddiqi Founder - Emerge Investments

December 14th, 2016

As an investor, I always like to see the exact position of the company in it's current guise. Most importantly, WHY are they looking for further investment. If the company had a few years of non growth but did solid business in that time, I would want to be sold the plans for short term growth, and long term sustainability. Has there been key changes to personnel? Has the business engaged in a new opportunity? Have they / are they looking to diversify their product / service? Is it a niche market they are operating in / moving into?

Provided the company doesn't have an alarmingly concerning financial position, and I can share the enthusiasm of the future scope, I can be engaged.

Most importantly, tell the truth. Most investors will smell a rat when one sits in front of them.

Who are the key people within the business, that drive it and shape its direction? They are the ones who should be at the forefront of the search for investment.

Arthur Lipper Chairman of British Far East Holdings Ltd.

December 12th, 2016

See http://REX-RIAR.com for the least expensive money.

Todor Velev Managing Partner, EEI Network

December 12th, 2016

Hi Mike, you have to prepare a teaser / blind profile and try to pitch investors that invest in SME. This is probably more difficult than finding a start-up investors as most of the funds have requirements with regard to the size of the company and, most importantly, want to have majority stake. Finding PE fund that invest in SME with minority stake is a very challenging task. On the top of that, some of the PE funds invest only in specific sectors. Probably you should try some other financing scenarios.