Raising equity investment – is it always the right way forward?

Sandra Steinhauer, Innovation Advisor at Newable discusses whether raising equity is always the right choice for businesses looking for funding.

Company founders can devote large amounts of time on raising equity investment. Yet sometimes they could be focusing on their business instead.

I’m constantly speaking with companies who say they urgently want to do one thing – raise equity investment.

It’s understandable. After all, who doesn’t want more money for their innovative business? It even sounds easy, if you read all the success stories that are published. Maybe raising equity finance is something that every ambitious entrepreneur should be doing.

But hold on.

Most entrepreneurs end up being very surprised by the amount of time they spend speaking to investors, and how little time is left for their actual business. The smaller the team, the more pronounced this becomes.

So before you decide to raise an investment round, ask yourself whether it really is the best way forward for your company right now.

You have only got so much time available: how can you spend it best?

Raising an investment round often means meeting, talking and pitching to many people before actually finding the right investor(s) and closing the deals. This whole process can easily take six to nine months. If you’re the founder, then it will consume the large majority of your time.

Maybe you relish pitching to investors – unsurprisingly, many founders actually don’t – but do consider what other parts of your business will be neglected while you are taken up by this process.

After months of doing nothing else but pitching to investors (and answering their many requests for more information) in order to close an investment round, one CEO recently told me that he felt as though he was being mocked when one of his investors asked how sales were going – having had nearly no time at all to focus on revenue generation over several demanding months. What would have happened if he spent all this time and energy into acquiring new customers and serving existing ones?

Do you really need outside investment to grow your company?

This is a question of speed. Not every company needs to show exponential growth figures and raise huge amounts of money to fuel that growth. Depending on the type of business and how fast you need to go to market, it can be entirely possible to stay lean and grow your company organically. That way, you stay completely in control and can focus on providing value for your customers.

Moreover, taking in outside investment can put a lot of pressure on your business to deliver specific results and growth rates that might lead you down a different path for your company than the one you had intended.

Do you want to give away equity in your company?

Raising an investment round might feel like freedom to finally move forward with your innovative business idea but don’t under-estimate the strings attached. Bringing in outside investors always means giving away a part of your business and ownership.

So consider how much you are willing to give up and think through the implications for your company. Many founders raise too early at valuations that are too low, leaving them with little leeway for potential further funding rounds.

Having committed their money, investors will almost always want to have a say in the direction of the business. Understand how much external influence you are ready to accept.

Have you talked to an EEN adviser?

There are other routes and options to help finance the growth of your company. Maybe you can bootstrap it for longer. Perhaps grant funding is available. Perhaps taking on a small amount of debt (loan) finance will move you closer to the place where investors want to become involved.

Newable is a delivery partner for the Enterprise Europe Network, the largest business support network in the world. Our Business Advisers can help you connect you with the right international partners, access government and EU grants, raise private finance from angel investors and venture capitalists and take part in free international and local business matchmaking events, company missions and workshops.

Talk to one of our Business Advisers to help you develop your business funding strategy.