Every entrepreneur or business man will inevitably come across a circumstance where they need to raise capital. Very few companies can grow and survive on accrued earnings alone, especially not in today’s competitive climate. Most of them believe that raising money is a piece of cake especially when they offer great products and services to their stakeholders, but this is not often the case.
Fundraising isn’t as simple as walking into a bank to get a loan, but a complex marriage of negotiations and compromise. Investors today are also more multi-dimensional, they look for a lot more than returns in their investments – promoter qualities, ESG compliances, regulatory clarity etc. Hence, fundraising boils down to presenting your business and your vision in such a manner that all its redeeming qualities come to light. However, this does not mean concealing any ill information, after all, honesty is the bedrock for financial relationships.
For an operator, whose job is to be in the trenches and execute daily, the fundraising process becomes cumbersome and burdensome. Mistakes in valuation, not understanding the term sheets etc. can create pervasive issues for the business in the long run – and may also significantly affect the operator’s motivation in the business.
This is where bankers come in. Seasoned professionals who empathize with the needs of both businesses and investors and can effectively match the two for the best combined outcomes. While bankers can be expensive for smaller businesses, they are an invaluable resource to find the best deal in the market. Their core competence in matters such as investor relations, due diligence, negotiations and deal structuring ensures that businesses get the best deal with adequate safeguards.
Fundraising requires a lot of efforts as well – multiple outreaches to investors, building the information memorandum, structuring the investment and cashflows, conducting roadshows, regulatory compliance etc. Operators are neither well versed with all these formalities and neither are they equipped to complete them within a reasonable time frame. Professional bankers come with teams and support services that handle all these activities and streamline the investment process.
Further and the most important feature that Bankers bring to the table is trust. No matter how good a business, any indicators of lack of trustworthiness in the business or its promoters will have all the investors running for the hills, and the ones who do invest will have enough safeguards to recover their investment at the cost of the promoter. A banker working with a business to raise capital also brings with him his reputation for picking strong high performing companies to partner with. This creates a positive feedback loop for investor clients who trust his partners due to the reputation being lent. This is why the best bankers are very careful of the businesses they raise funds for.
As a concluding thought, bankers are the best means to raise capital, especially for entrepreneurs with no understanding of fundraising dynamics. That being said, there is also a need to be very careful to take an effort to understand the terms being agreed and to gain a degree of personal comfort with the integrity of the banker as well – which is the entrepreneur’s lookout.
This post was written in collaboration with Asif Yahiya Sukri LLP. Asif Yahiya Sukri LLP provides unparalleled personalized financial services to a broad range of clients across different geographical locations. With presence in the USA, India and the MENA region, they ensure that all of your financial decisions are made carefully and with your best interests in mind. They are innovators who understand what goes into building companies.
You can also reach out to them on info@aysasia.com
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