The mission to secure investment for your business requires many considerations to better your chances of success. One of the first things you need to think about is how much funding you hope to achieve.
When seeking external finance of any kind, it is crucial to know what you need to realise your ambitions. This prevents you from taking out multiple sources of funding in quick succession (which can result in funding and cash flow issues). It also enables you to effectively launch or grow your business in line with your unique goals.
Upon entering funding pitches, investors will be listening for a ballpark figure of how much of their money you hope to obtain. While your pitch will be vital for demonstrating you are worth this figure, stating it openly will set expectations and help you get the money you need.
However, it isn’t a matter of pulling a number out of thin air. The amount of capital you ask for must be backed by data and aligned with the value of your venture. If not, you risk scrutiny from investors and walking away with less money than you wanted – perhaps even none.
Below, we have outlined how to calculate how much investment you need and the different considerations to make first.
- Project your expenses
- Understand your financial situation
- Work out the value of your business
- Tailor your pitch
Project your expenses
When determining how much investment you need, you have to know what costs you expect the investment to cover. The easiest first step is calculating any expenses you will incur.
These expenses will vary from business to business. If you are launching a start-up, you will likely be looking at various set-up costs, sales, marketing and development costs for example and any other expenses that must be paid to enable your enterprise to begin operations. If you’re growing a company, you will need to consider additional salaries, supplies, development costs, infrastructure and so on.
Aim to compile a detailed list of your expected costs and place figures next to them. These figures could be obtained by market and competitor research, previous experience, or getting quotes from relevant companies. Of course, it will be impossible to predict every penny you will spend, but having an approximate estimation should give you insight into what spending requirements you need to meet.
Understand your financial situation
Next, you need to understand your finances. When creating an investment pitch, you need to include plenty of financial information, which will come in handy when providing an investment figure. It will also enable you to show how you have worked out that figure to the investors, using accurate data.
Utilise data such as cash flow forecasts, historical accounts (where available) and profit and loss statements to gain a full view of your finances. This should help you determine what money you expect to come into your business, which can be offset against your predicted expenses. With this, you can identify any cash gaps that need to be addressed through investment to allow you to meet your goals. You will also need to consider the market context at the time you intend to launch or grow and any impact this may have on the funding you need.
Alongside your financial projections, you should include any external funding you intend to use or already use, such as loans, existing investment or grants. Again, this will build a picture of what money you have to use versus what you need and enable you to plug the gap between them.
Work out the value of your business
When approaching an investor asking for a specific sum of money, they will want to know why they should give it to you. Due to this, you won’t get very far asking for substantial amounts without the evidence to back it up. So, as well as working out your funding needs, you need to calculate how much you are reasonably worth.
In an investor’s eyes, the worth of your business boils down to the return on investment they can expect to receive. The higher the rate of return, the better.
To achieve great ROI, your business will need to generate sales, profit and have growth potential. So, you need to prove your ability to do this through a sound business model, understanding the market and strategies that drive revenue.
You may also seek a business valuation that uses a set of procedures to work out your company’s economic value. These can be looking at comparable companies and their valuations based on raises at a similar stage or other models such as discounted cashflow .
Using these evaluations on top of supporting information about the growth potential of your business, as well as any broader worth (such as filling market gaps, charitable causes and local growth), will help you to determine the value of your business and therefore the % of your business that the investors will get in exchange for their investment.
Tailor your pitch
Finally, with an understanding of the funding gap you need to fill in your venture and what you are worth, you must focus on how you will portray this to investors to ensure success.
When putting across the amount of investment you want, you should be able to back this with your financial data to prove how this has been sensibly calculated, using accurate insight about your company and the market.
Secondly, you need to highlight what can be achieved with the sum you are requesting. Your pitch should show that this money will be spent responsibly, under a robust business model that both creates value and serves demand, and that great returns will be generated through growth and revenue. This will assuage any concerns the investor may have about not getting their money’s worth and instead highlight the enhanced ROI they will experience by investing increased sums.
Investors won’t always accept your valuation as the final deal. So, be open to negotiations and try to remain realistic about your business valuation. If your pitch is effective, you should still be able to secure a good level of funding, even if the trade-off is more than you had originally intended.
Get advice
Securing investment can be an essential stepping stone for any business on a mission to realise its goals. However, it is essential to get the right amount to effectively meet your requirements and make your future vision a reality.
Following the steps outlined above, you will be able to better understand the investment requirements that suits your needs and matches the worth of your venture. You can then confidently go to investors, asking for an amount backed by data and insight.
If you need support in understanding your financial needs or approaching investors, we can help. Our team of advisers provide specific guidance tailored to your situation, including how to create a funding pitch for investment that boosts your chances of success.
We can also identify alternative solutions to investment, or those that can sit alongside equity, to help you top up your external funding.