Raising money is something many small businesses need to do. But as the saying goes, often when you’re looking for money, all you get is advice and when you’re looking for advice all you get is money.
So it’s important to know where to start, who to talk to and how to pitch the business. Because if you get fundraising right, it’s a skill you can parlay into every subsequent venture.
Nicolas Chu recently raised $2.5 million for his start-up Sinorbis, which helps Australian companies sell to Chinese digital consumers. The business is building a marketing platform that will allow Western companies to do digital marketing in China.
The fundraising was over two rounds. Earlier this year Chu raised $1.5 million in seed funding. More recently he raised $1 million to develop the platform.
Chu’s advice for businesses looking to raise funds is to pick the right investors for the business, depending on its level of maturity.
“People just go after the money and don’t look at who the investor is. It’s a mistake. You’re giving away a part of your company so you really need to be careful about who you ask for money.
“If you go for an active investor, you have to make sure there’s an alignment between the investor and your strategy and make sure this person can actually help you.”
He says it’s important to have both active and passive investors because early stage ventures need much more than just money.
“There are three types of investors I would recommend to look for: someone who can help you to raise even more money, someone who can help you to grow the business by acquiring clients or partners and someone who can help you to manage the business,” he adds.
Chu is fortunate in the mix of investors on his register. “One of our investors has been very active in introducing us to other investors, which allowed us to raise our target amount fairly quickly. Other investors introduced us to potential clients. And we have had people who have introduced us to contacts in the health supplement space.”
Chu sees this as an important potential market for the platform given Chinese appetite for Australian vitamins. For instance, vitamin manufacturer Blackmores doubled full-year profit to $100 million at its most recent full-year results, on the back of a six-fold rise in direct sales in China.
His advice to other small businesses looking to raise capital is to recognise the difference between the two potential pools of money: institutional and non-institutional.
“Non-institutional money, which comes from angel investors, can be allocated quite quickly. It’s much more about making sure you the person is aligned with what you want to do; it’s a more one-on-one relationship.”
He says angels can make investment decisions within days if they find the right opportunity. “It’s usually pretty straightforward. They either believe in what you’re doing and the team or not.”
Non-institutional money is a different game. You need to build relationships and let them know about your business. Discussions can last up to 18 months.
Mick Liubinskas, who has recently moved to the US, is entrepreneur-in-residence at Muru-D Accelerator, and a veteran in local fundraising circles. He agrees it’s all about targeting the right investors, especially when it comes to pitching.
“It’s essential to know your audience and be prepared. It usually takes 100 pitches to tell the story well,” says Liubinskas.
He also says the more the merrier when it comes to fundraising. “If you only have one investor interested they set the terms. If you have three or more, you set the terms.”
Ultimately, most founders should be raising funds most of the time. Says Chu: “When you start raising money you never stop. Even when you are not actually raising money, you are always raising money.”
The message for small businesses is to see fundraising as an ongoing agenda item, rather than a one-off. That way you will always have a pipeline of potential funding sources and, hopefully, an ever-growing network of supporters for the business.