What are the keys to raising finance?

Grant Leboff: I think one of the issues for any business is about raising finance for them, so what are your what are your tips when a business wants to go and raise some equity? .

Guy Rigby: I think it Obviously the cheapest form of finance is retained profit, and you just carry on spending your own money effectively. It also depends on the stage of the business, but there is a funding ladder which we could talk about, which is basically the three F's at the beginning. Friends, Family and Fools for a start up business. And then you move into the high net worth arena, which of course is tax incentivised often in the UK, through something called the EIS. And then you tend to start to look institutional finance.

But what I would say is that ownership determines outcomes and at the end of the day, if you want to run your own business for the benefit of yourself and your family forever, then taking in third party finance can effectively prevent that, because of course those parties want an exit at some point.

Grant Leboff: And if you're going to go to venture capital or more than that the friends and family route, what are the things that needs to be in place for a business to ensure, or to seek to help them, get to raising that money?

Guy Rigby: OK, so the trouble is this is all very circular. You really need to have a professional outfit to go to an institution, and professionalisation is one of the keys to it. There are two types of capital, I suppose, institutional capital that you can go for, one is called 'venture capital' which is the high risk, high reward type and the other is what we call 'private equity' which is much more steady, eddy, it's an established business. If you're starting the next big Internet audience, eyeballs site, then you're probably going to go for venture capital because it probably doesn't make a profit, nobody can predict what's going to happen and the returns could be a hundred times - if you get it right - for your investors that is. Where as, as a private equity investor, which is a later stage investor, will be looking at the profits of the business or the ability of the company to generate profits. They will be looking to make three to five times their money, maybe over five to seven years, as opposed to that hundred fold opportunity.

Grant Leboff: So are there any big do's and don'ts that you would say to a leader or an entrepreneur when they're starting to think about... their are obvious mistakes you see people making and their are things they should be doing and sometimes just people miss.

Guy Rigby: I think probably, one of the biggest mistakes is that founders often leave it to other people to make all the decisions around their finances. I think they need to be heavily involved, at the outset, or during the process of raising money, because money comes with conditions and the terms and conditions associated with growth capital can be quite onerous. They can involve the owner, or the founder, no longer having a job for example - because you're giving away control effectively de facto - not necessarily at 51 percent but you might give someone 20 percent with rights and those rights might enable them to remove you if they don't think you're doing a good job. So you need to be completely sure of your position at all times. You need to read the documentation, you need to look at the legal agreements.

I once had a case where a business was over a hundred million dollars and the owners took $600 away between them.

Grant Leboff: Gosh. So those are some of the things are going to be careful of. Are there any must do's that a business owner, leader, management team should do if they're going to go to the market to raise money? I think they need to understand that actually, going to the market means that they're lining up for some liquidity event i.e., exit trade sale, flirtation maybe at some point, so they need to be happy with that.

It's not easy to go to an institution and say; look I'll tell you what give me the money and I'll buy you out again in five years time. It can be done, It has been done, because there are things called secondary buy outs, so one investor sells to another investor who takes it on to the next stage. But largely speaking, investors like to exit alongside their investors. So I think it's back to this ownership changes outcomes or determines outcomes. If you take an external capital you're probably going towards some sort of exit at some point.

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