Your business is a success and there are opportunities to grow it. That’s great. The only hitch is that you need more funds.
It’s a perennial problem for SMEs and just knowing where to start the hunt for capital can be difficult.
With this in mind, Women’s Agenda sister site SmartCompany spoke to three businesses who have just been through capital raising to discover how they went about it.
Inika Cosmetics: “It took years”.
Miranda Bond, chief executive of Inika Cosmetics, told SmartCompany it took her years to raise capital for her organic cosmetics business when she was looking for a cash injection of between $500,000 to $1 million.
Inika competes against what Bond describes as the “global goliaths” of the cosmetics industry and had been entirely self-funded relying on organic growth.
Bond decided Inika needed capital to grow from being an Australian company to one that sells in multiple countries.
“I have been on the capital hunt for several years, it took me two years to find a deal that I felt comfortable with and part of that was me needing to get a reality check,” Bond says.
“As an entrepreneur when you start on this whole capital raising process you always feel your company is worth so much more than it is and you are always really reluctant to give away equity.”
Bond initially looked at raising capital through a deal with “a big company in the fashion industry” however when the deal was about to close she pulled the pin.
“It just did not feel right. I just felt that the actual people themselves at the company were not the right people for me to get involved with so I walked away,” she says.
Bond then tapped into entrepreneur networks including the Entrepreneurs Organisation, Sydney Angels and Head over Heels, a group specifically designed to assist female entrepreneurs.
From these groups she got network connections and good advice in terms of how to progress.
“I didn’t have any experience in fundraising so the Entrepreneurs’ Organisation and Head Over Heels were really good in terms of having people who have gone there before and done this,” Bond says.
“I was able to talk to people to really learn from them what were the pitfalls and learn from them,”
Through the Entrepreneurs Organisation, Bond got in touch with the Sydney Angels and although a syndicate formed from this Bond ended up walking away from the deal.
“I went and pitched to a room full of men in suits about organic and natural makeup, I think there was one other woman in the room,” she says.
“We could not come on an agreed valuation of the company so I walked away.”
After the failed capital raising Bond got talking to one of the people behind the Sydney Angel’s syndicate, Melissa Winmar, who Bond says “took me under her wings a bit” and impressed on her to stop worrying about the percentage of equity she was giving away.
“She impressed on me if you don’t take the money then the opportunity will pass you by.”
Bond ended up speaking to a whole lot of individuals to make a shortlist and received assistance from accounting firm PwC for this and then went out and did “loads of rounds of pitching” out of the shortlist from this she came up with a venture capital firm called Cardinia Partner.
“It’s actually a pseudo VC firm as it does not have a pot of money, they approach their network of investors and say we have a particular deal,” Bond says.
“It’s made up of mainly high net worth individuals out of Asia particularly Singapore and Hong Kong, I went with them because I could secure a convertible note which gave me more comfort and by the time I was dealing with them I got more realistic on what my expectation was in valuing the company.”
As well as getting a deal that she was happy with, a principal representative from Cardinia Partners also joined the board of Inika to provide experience in managing growth and taking companies “from woe to go”.
“It wasn’t just completely dumb money and it was being able to get someone’s opinion,” she says.
The deal closed in July this year and now Bond is back on the capital raising path already.
Shoes of Prey: “It was like herding cats”
Michael Fox, co-founder of Shoes of Prey, told SmartCompany the experience of raising $3 million for the online shoe business was “like herding cats”.
Shoes of Prey first started thinking about raising capital in December 2010. Fox pulled documentation together then, but the process was nowhere near straight forward and Shoes of Prey ended up talking to about 70 or 80 different investors over the next 18 months.
Fox says he talked to investors in Australia, Europe and the United States and “pretty much without fail” all the investors outside Australia said “we love what you are doing but for an investment of $2 to $3 million in size you are looking at we don’t do those investments outside of our home countries”.
“They want to be able to keep close tabs and use their networks and help out the business they are investing in,” Fox says.
The overseas investors told Shoes of Prey the business had to move to the US or Europe to secure the investment, but Fox says that because Shoes of Prey already has its team in Australia and he likes doing business in Australia he and his co-founder decided not to make the move.
Fox says there are not a huge number of investors in Australia looking to do technology investments around the size of Shoes of Prey so he ended up talking to “all of them” and got nine different investors to put money in.
Shoes of Prey found the investors through both founders’ networks and by talking to people in the investment community.
“It was like herding cats because none of the investors we were talking to wanted to do the whole$3 million so we had to get a group of them together all at the same time and all comfortable with the terms, although the investors did help out with it,” he says.
“Having to get everyone to say yes at the same time was a bit of a marathon process.”
PageUp: “We wanted to tap into experience”
Melbourne-based software company PageUp People managed to secure a $US10 million investment from a US private equity firm to drive its international expansion last month.
PageUp, which specialises in tracking the performance of workers, secured the investment from Accel-KKR after months of negotiations.
Chief executive Karen Cariss told SmartCompany she specifically targeted the United States to fund raise and didn’t seek to raise capital from the Australian market.
“My view was that because our predominant support that we were looking for was to underpin our global growth, we wanted to tap into the experience of the US investment market to deliver to that,” she says.
“We went out to the investment community in America…about six months ago and met with 20 firms and then shortlisted that to firms we had deeper conversations with.”
Cariss says the US investment community is well established and there was a wealth of experience there that Page Up could tap into.
She says it was not necessarily more difficult to raise funds in Australia, although Australia does offer a “far less travelled path with a smaller market”.
Cariss says PageUp went with Accel-KKR because of the firm’s experience and the partnership approach it offered.
“Accel-KKR have a good cultural fit to us and focuses solely on technology firms, so it has a lot of experience investing in our area and strong networks that will add a lot of value after the capital injection,” she says.