Let’s face it; building a business is hard work. Getting external funding to realise the full potential of your business can be even harder. While entrepreneurs are often gifted with tremendous passion, vision and resilience to establish and grow their businesses, many lack the specific expertise and experience to manage a capital raising or business sale process.
And this makes sense. We rely on specialists every day to assist us with the most important aspects of our lives, for example, registered doctors to diagnose and cure medical conditions. After all, we meet these challenges infrequently (hopefully), yet they do this work daily and are extremely well-versed in what is required. The alternative (Doctor Google) is cheaper, but there can be severe consequences with getting it wrong. The same logic follows when relying on a corporate advisor to help grow your baby (business).
As a rule of thumb, unless your business requires more than $1m in funding and you are pitching to parties outside of your family, friends and associates, the cost of appointing an advisor doesn’t justify the expense. These types of investors know you well, reducing the need for a sophisticated and thorough transaction process.
However, if you are pitching to high net worth individuals, family offices or Venture Capital funds, you may benefit significantly from having an advisor. Here are the 7 things you need to consider to select the right advisor for you:
1. Experience and credentials: An Australian Financial Services License is mandatory. Any advisor who lacks the appropriate licenses (including arranging to acquire or dispose of securities) doesn’t have the fundamental expertise and credentials to assist. The advisor should also have relevant deal experience. Advisors with experience in mining deals, complex financial products, or billion dollar transactions will, for instance, often lack the hands-on experience to help guide a small but fast growing technology company.
2. Relevant trusted networks: The right advisor will be able to provide you access to relevant trusted networks. Many advisors come with a rolodex of Venture Capital firms, High Net Worth Individuals and Family Offices. These networks are only powerful if there is trust between these parties and the advisor, and transactional alignment between your business and the investors’ investment criteria. Many investors receive hundreds of proposals every year and use their networks to quickly filter what is and isn’t credible. Great advisors only showcase strong deals that meet the Investors’ criteria, meaning these deals go to the top of the pile.
3. Crafting an investor story and getting your business “transaction-ready”: How your business is represented is critical, as you only get one chance with potential investors. An advisor with experience within your industry sector can provide invaluable insights on how to craft your investor presentation and what questions will be asked during due diligence. Being transaction-ready enables you to deliver critical investor information expediently, ensuring you maintain strong momentum and credibility with potential investors.
4. Challenging assumptions: Advisors see lots of businesses, so they should provide constructive feedback with regards to your business model, sales strategies and product roadmap. Be wary of any advisor who is always in agreeance.
5. Who will you actually be dealing with: When engaging with larger corporate advisory groups, ensure you understand who will manage your relationship from day to day. Partners / Principals can be mightily impressive when pitching for your transaction, but it can be very disappointing and frustrating to be left dealing with junior staff in your moment of need.
6. Positivity and energy: Your advisor needs to be (almost) as passionate as you are about your business. Gaining momentum and attention of investors requires positive energy. If you and your advisor aren’t excited about the prospects of your business, investors certainly won’t be.
7. Relationship and trust: Don’t underestimate the importance of building a relationship with your advisor. There will no doubt be difficult conversations over the capital raising journey when things aren’t going to plan, when investors challenge valuation assumptions, or in the heat of offer negotiation. Your advisor is charged with representing your best interests, so it’s important that you have strong trust in the advisor’s integrity and their desire to see your business succeed.
Finding a capable advisor that you trust and enjoy working with, will be of huge benefit when crunching out the nitty gritty details of negotiations, so your business can come out of the process with the funding required to realise its full potential.
Paul Tontodonati is the Founder of Platform Advisory Partners. They provide pragmatic and hands-on business and transactional advice based on decades of experience across financial markets and advisory. Platform has extensive transaction experience with both smaller private firms and large ASX listed companies undergoing fast growth. Their transactional sweet spot are deals between $5m to $100m.