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Three things to do before you raise capital for business
Fono Sosene
Finance & Accounting

Three things to do before you raise capital for business

The importance of market research cannot be overestimated, especially if you’re in the process of scaling your business. Below are three things to do before you begin to raise capital to take your products or services to the next level.

1. Determine market size. Is your target market large enough to accommodate growth?

Most business owners dream of growth, but expansion doesn’t always lead to increased profit. Before you can raise capital for business, you need to ensure that enough people are willing to pay for your product or service. You have to consider that you may not be able to sell your offering to everybody. 

It’s very difficult to grow (and to attract potential investors) if you’re competing in a very small marketplace with no room for expansion or export. Think about not only the size and viability of your target market, but also competitive rivalry and external conditions. 

You may find it useful to conduct a ‘PEST’ analysis. PEST stands for Political, Economic, Social, Technological. It helps you analyse each of these four external components and how they might influence your business. For example, can you identify any political movements that could help or hinder growth (such as new business laws or restrictions)? What about the economy – is this currently in your favour? As for social factors, take into account trends within the age group you’re targeting, as well as factors such as religious beliefs, employment attitudes, and other socio-cultural influences. Finally, keep up with technological change and identify strengths and weaknesses in your IT strategy. 

The better you know your target market, the better you will be able to prove the potential for growth – and this will be a huge drawcard when trying to attract investors.

2. Test, test, test. Have you robustly tested your offering?

It’s one thing to come up with a great idea; it’s another thing altogether to take it to market and make it profitable. The world is full of amazing ideas, but not every idea sells. Before you can attract investors, you must conduct qualitative and quantitative market research and make sure there’s a ‘hungry crowd’ awaiting your offering.

Buyers are savvy and have high expectations – they are looking for products or services that provide immense value. You cannot presume they will love your product; investors will want some form of proof. You need to be able to demonstrate that there’s a strong product-to-market fit.

3. Get online. Is your digital strategy ready to roll? 

The internet has been around for a long time now, and is only going to become more influential in the business world. Building an online presence is no longer something you can put off for a rainy day; it’s not a ‘nice to have’, but an essential component of creating a successful business in the 21st century. 

If you don’t have a digital strategy, investors could see this as a potential weakness – they may fear that you don’t have the technological know-how to take advantage of the changing marketplace. The good news is, digital specialists are in abundance; there are plenty of web designers and content marketers looking for work, so you should be able to outsource most of your digital growth if required.

While this is by no means an exhaustive list, it should serve as a useful starting point for conducting market research. Your market knowledge is one of your best business weapons – but only if it can be proved on paper. Remember, investors are looking for reliable facts and figures, not optimistic estimations.

Raising capital and funding is not easy - it also comes with risk, so you absolutely can’t afford to get it wrong.

Download our free guide (https://info.bellinghamwallace.co.nz/capital-raising-guide) to make your journey that little bit easier.

By Channel Editorial

Channel Magazine: Issue 77 June 2017

Columnist articles by Channel Editorial