Raising capital in scary markets
Friday, February 1, 2008/
Raising capital in a nervous market isn’t impossible – it just requires a more focused and informed approach. Here are a few pointers…
Sharemarkets around the world are very scary right now. There were some spectacular drops, and we haven’t seen the end if it. There is recovery in some sectors but we’ll probably see adjustments into the next few months.
So how does this affect entrepreneurs raising equity investment?
Venture capital companies raise parcels of money from the pension/superannuation funds. So those VCs that have a fund in place will continue to invest in the entrepreneurial market. They have money in the bank and they’d obviously prefer to have that money in entrepreneurial companies earning good returns.
Those VCs who are trying to raise capital may find it more difficult to do so. Venture capital is a very high risk investment and nervous superannuation funds may look for more secure investment opportunities. That may mean some tightening on investment funds available in the overall market.
Any change in interest rates will affect your capital raising capacity. And with the threat of inflation there may well be an increase in interest rates. Investors are looking for five to six times the bond rate in terms of return. If the bond rate goes up then you will need to demonstrate how investors will get the return they want. There is a relationship between bond rates and investor returns. However, this is not an exact science.
Some investors may wait until the markets settle a little before taking on more investments. People do get nervous in these environments. The best approach for entrepreneurs is to talk to the investors on your short list. Ask them what they are doing. Find out how they are responding to these volatile markets. Each one of them may well put in place a range of different tactics.
Keep on track and continue your capital raising activities but be aware of what’s happening in the big market. In volatile times, the best advice is to talk to investors and advisers regularly. Read the financial papers, read SmartCompany. Get informed.
Till next time.
Gail Geronimos, is the founder of Achaeus, which helps entrepreneurs develop their businesses and she has just started a new site www.pitchingtoinvestors.com with tools and tips about how to develop killer presentations to raise capital.
To read more Gail Geronimos blogs, click here.