Water water everywhere but not a drop to drink
Almost everyone would be familiar with that saying but none more so than entrepreneurs and businesses looking for external funding in these uncertain and volatile times. It is true that there is plenty of money around looking for good investment opportunities.
However, it is also true that not all of it is easily accessible despite the advent of the internet and search engines. To that, add the question of how – how to access that financing even if it is available and how to assess what it means in terms of cost, obligations and restrictions. This is a challenge faced by so many looking for funding in the complex world of corporate finance.
Over the last 2 decades, like many entrepreneurs and business managers, I have faced those issues and challenges too and have gained valuable insight into the mystical world of corporate finance through both my triumphs as well as my failures. Many of the lessons learnt are straight from the ‘university of hard knocks’ and most don’t feature anywhere in the vast library of books on corporate finance.
So, what is corporate finance? In simple words, it is the effective and efficient sourcing and management of finances of an organisation in order to achieve the objectives of that organisation. In this context, the size or maturity of the organisation is irrelevant as even sole traders or start-up ventures have to manage their finances effectively to not only survive in a competitive world but to grow the business when favourable market conditions prevail.
Whilst some businesses can and do grow organically, it can be a slow process and dependent on stable economic conditions prevailing for extended period of time. Such a model, however, does not work for many entrepreneurs and business managers who are either in an incubation or start-up situation; pre-revenue or loss-making situation; or, looking to accelerate growth through short-term opportunities presented from time to time.
External financing can take many forms, ranging from simple debt to straight equity, with a whole range of hybrid products in between. What type of funding would suit a particular requirement depends on several factors including the availability of collateral or guarantees, quality of the investment case, accessibility to suitable investors or debt providers, financial market conditions, availability of tax incentives, timing of the fundraise and even the planned exit strategy.
Apart from conventional debt providers such as the Tier 1 banks and building societies, today entrepreneurs and business managers have access to many other sources of finance, ranging from crowd funding platforms to venture capitalists and private equity/hedge funds to capital and bond markets.
Given the sheer range of options available, it becomes quite a challenge for most business promoters to decide which route to take and how to go about it in order to achieve a successful outcome. Not only that, the business promoters also have to consider how the current fundraising mode may impact on any future fundraisings, if already foreseen.
To say that it is a minefield out there would be an understatement. Given the complexity and sophistication of the current world of corporate finance, business managers would be well advised to seek external advice and support from an investment bank or a corporate finance house.
Whilst naturally there would be a cost involved in such an engagement, it would be more than compensated by the saving of precious management time, especially at a time when business safeguarding or development must or should take precedence.
Choosing the right investment bank, a stock market broker or a corporate finance house is critical and several factors need to be considered such as its reputation and track record, quality and experience of the client principal(s) involved, expertise in the sector and cost of the service.
One should pay particular attention to the ‘finder, minder, grinder’ of the house to ensure that, at each level, there is quality and consistency in the offering and service as the programme proceeds.Having dealt with a number of investment banks, brokers and corporate finances houses over the years myself, I would strongly advise everyone to spend quality time in choosing the right adviser for your needs.
Some of my so-called failures resulted directly from making the wrong choice of advisers who not only took up a great deal of precious management time but some also were directly responsible for sabotaging good business opportunities, although not intentionally I add. Through these experiences, I have learnt to question every advice or lead I receive from those professionals and recommend that approach to anyone who is looking for advice and funding through these means.
Finally, I would add that raising finance can be both physically and emotionally challenging.
It can take several weeks, if not months, and requires a great deal of preparation, patience and tenacity. In this game where strength and nerves can be tested to the limit, I like to remind my clients that ‘one has to kiss a lot of frogs to find your prince’. I also remind them that the first prize is ‘success’ and the second prize is ‘fast failure’. So, be decisive, cut short any initiative that clearly is not going to work and move on.