Raising cash for a fast-growing business

August 26, 2008: 9:07 AM ET

Before courting investors, make sure you prepare your pitch.

Dan Henderson, Houston
Our company is growing very rapidly - sales should exceed $40 million in 2008, up from $11 million in 2005. Though we've had the funds to acquire smaller companies, our latest acquisition required some creative financing, and it's becoming clear that the next phase of growth will require additional capital. What is the best way to draw interest from private equity firms?

By Myrlande Davermann, Fortune Small Business contributor
Dear Dan: Sometimes a business can grow so quickly, its owners forget they're no longer running a startup. Jeff Henningsen, an executive with the Association for Corporate Growth's Houston chapter, says your company is on the verge of entering a new arena - so it's time to play big. Henningsen suggests hiring an investment banker, who can help you raise capital and guide you through sales and acquisitions.

"A banker will expose your company to the world of private equity in a way that no owner can," he says. "It will also allow you to remain focused on growing your business." Financial advice can be expensive, but, given the resources you already have, it's a necessary cost.

Whether or not you hire a banker, you'll need to take steps on your own to prepare your pitch to investors. Emily Mendell, vice president of strategic affairs at the National Venture Capital Association (NVCA) in Arlington, Va., says you must have a comprehensive business plan in hand. The write-up should include an industry and market analysis, financial projections, and a thorough competitive analysis and global strategy.

Once your plan is complete, you'll be ready to begin the search for investors. Mendell suggests starting with word of mouth. Ask around to find out who's investing in what sectors. John Taylor, a research and financial affairs executive at the NVCA, says you should look for keynote speakers and panelists at industry conferences. Active firms that are looking to invest in companies such as yours will send representatives. You can also purchase an NCVA directory, which lists firms by their investment concentration.

Taylor and Mendell advise you to make sure that venture capital firms are interested in your field of business before you approach them.

"The due diligence process can take several months," Mendell says. "But it's very important - both the company and venture capital firm need to be confident that they've made the right match." She suggests that you look for a firm that has a similar culture and vision to yours. Venture capital and private equity firms will become highly involved in managing your company, so it's important to ensure that you click before hooking up.

Give us your advice: Check out recent "Ask & Answer" questions.

Related links:

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Resources for raising money

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