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25/01/2023

How to set the amount of a fundraising event?

Levée de fonds

It is not easy for an entrepreneur to assess the amount of money that can be raised in a fundraising round. It is all the more difficult when it is a first round of financing. Experts at AURIS Finance, an advisory firm specialising in mergers and acquisitions, explain the various factors that need to be taken into account before proceeding.

Fundraising is not a separate activity, disconnected from the real needs of the business. It has its own function: to support the growth of the business or to develop a new project. The first step is therefore to formalise the purpose of fundraising by asking the following question: “For what purpose is the fund-raising being carried out? This first simple question will give a fairly accurate estimate of the amount to be sought.

Anticipate in order to avoid running out of cash

This is provided that you take into account all the costs involved in developing the activity or new project, such as the cost of designing a new product, but also the cost of recruiting staff, opening new offices or production sites, and the marketing needs associated with the new launch. The main purpose of raising funds is to avoid running out of cash, so it is important to think about all your needs in advance. This strategic thinking needs to be accompanied by a complete business plan, drawn up over a long period of time (3 or even 5 years), which includes both the necessary expenditure and the expected profitability.

Assessing the attractiveness of your company

However, the amount requested cannot be sufficient in itself. Any financial transaction has to be seen in the context of a particular market. At the moment, for example, the high level of uncertainty in the global macroeconomic context is depressing fundraising. Nevertheless, French tech seems to be doing well for now, with fundraising on the rise for 2022, according to the latest EY survey. So not all companies are at the same level of attractiveness. Investors experienced in fundraising scrutinise the accounting and financial aspects, but also assess the originality of the project by comparing it to its market. In addition, the founder’s ability to rally his or her teams around a major project will be closely scrutinised by investors: the business plan should therefore include a substantial section on the founder.

The importance of the trade-off

In the context of a fund-raising operation, the founder must ask himself beforehand how much of his/her company he/she is prepared to sell. Whilst the vast majority of founders wish to retain a majority stake, some projects require large amounts of capital to be raised and may therefore require the sale of a significant proportion of the capital. It is also advisable to think ahead about the type of investors you are looking for. In the case of minority stakes, investors may act as sleeping partners with very little involvement in the running of the business, as opposed to active investors who will tend to oversee the day-to-day running of the business. Relevant to the calculation of the amount to be raised are the type of investors and the proportion of capital to be provided in return.
Get the support you need

Successful fundraising is a major challenge for entrepreneurs. The right amount of money raised must allow the entrepreneur to carry out his/her projects without feeling cheated in terms of the amount of capital sold. AURIS finance experts, specialised by sector, will help you to find the right balance. They will be at your side throughout the process, advising you on finding investors and formalising your application.

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#Financing & Fundraising #AURIS Finance