In the business world today, increasing numbers of startups are sourcing for funds. Likewise, the investors are also looking out for the right businesses that will guarantee the highest return on investment for them. In our chat with Dirk Rothig, who is an investment specialist from Germany, we discussed the goals, the chances of new businesses and investors, as well as the to-dos for future business to find the right investors for them.
How hard is it to raise money in 2018? Do you foresee any change in the nearer future? What can startups do to find the right investor for their business?
Putting money together for business is not an easy task. Usually, it depends on the aim of the business, the type, the location, the associated risks and other unrealized deal brokers. With this said, there are lots of liquidity present in today’s market. The conversion of those into cash has enabled me to gather some money for most of the works I undertook.
What are the biggest errors made by upcoming businesses and companies in the course of raising money?
Wrong thoughts. They begin to lay more emphasis on what the investor is looking for, instead of focusing on what they have to offer. It is more challenging to figure out the thoughts of an investor. But with a credible investment story, you can easily convince the investor.
How long does it take to raise money through a Venture Capitalist?
Getting funds from a VC usually takes an average of six to nine months. It is a long lasting target because of the factors involved, including an extended period of decision making, long due process, and steps in contract drafting. It is not the quickest means of raising money, and not every business aim is right for VCs.
What are the best means of getting to know a potential investor, before meeting them officially?
Realness is crucial. You can also practice with close friends and unreal investors before meeting the real investor. Be flexible; be open to making compromises where necessary; but have it in mind not to give up idea or identity. Your story must be clear and concise, easy to understand for everyone. You need to make it possible to be able to brief your investor in the space of two minutes, in the elevator. You can have the best business idea in the universe, but if the investor does not find you likable, they will not invest in your business.
What is your advice to startup owners on how to make a good first impression at the first meeting?
Be yourself. Do not try to play the investor. Once the investor does not like you, obviously, he would not invest in you. If you get the attention of the investor by faking your personality, you might succeed for that period. But eventually, he will get to know about your faking, because he will still have to face the real you later.
It has been proven that money is not the only need for startups. What are the mistakes startups make even when they have the funds?
Most times, there is more to a successful business than money. It needs the right skills, experience, the right people, plan and other things. Hence, it is not just the investor that is needed, the right management or a business angel is needed as well.
Businesses, over time, have revealed their fears as regards investors taking over once they provide funding. What can be done to prevent such?
This is a case of contradicting interests between the investors and the owners. Though it appears challenging, the only lasting solution is to seek a good advisor who can recommend more sophisticated methods and contractual options. Ultimately, it is more convenient to have 49% from something, than a 100% from nothing.
How do companies value their worth before the investment?
Most company owners usually overvalue their company. There are common ways that can be used in valuation, however, be mindful of the fact that without these additional monies, the company will either go bankrupt or develop at a very slow rate. Hence, the investor’s position is usually a powerful one.
It is often said that raising 50 million euro requires less effort compared to 100k euro. Why is this?
This is the same thing as saying “to make the first million is the most difficult.” If your company is large enough to get a huge institutional fund and is in need of 50 million, then you are successful already. This money is a lot of liquidity in the institutional market. And the likes of pension money and insurance companies are all very eager for new worthy investments as such. Hence, with the right people on board, raising 50 million is easier compared to 100k.
In recent times, there have been many different methods to get money for your company. Can we say the part played by the traditional bank in getting a loan is over?
The bank only comes into play when you require a working capital in the normal business environment. Banks do not involve in risky transactions, and they do not wish for equity risk in your company. In the last fifteen years, I haven’t seen or heard of any successful business that financed its progress without a bank loan.
Investments are now global; you can get it anywhere in the world. But for smaller companies, they are often advised to stay close to the origins and seek local finance methods. What is your say on this?
Pecunia non olet, I am not interested in the source of the money, except there is a political risk involved, like the Russian or Chinese money. Therefore, it might be less stressful for the founder to look for money in their country. But if the founder cannot get money, I would take the money, irrespective of its source, once it does not carry any burden.
Some investors do not like the business’ financial status, the location of residence and juridical position and hence propose a change. What do you advice? Should entrepreneurs be open to these changes, even if it means relocating to another country?
Yes, why not? The most important thing is that the business keeps growing. It is not a big deal where the growth happens, whether in the UK, Germany, France or Italy. If the investors are pushing for a change for reasonable causes, then it is okay to move.
Conclusively, what advice do you have for businesses planning on getting external financing?
Get a fundraiser and adviser with the wealth of knowledge. Someone with an impressive record and experience, and with the contacts of the right people.