In today’s world, more new businesses are on the lookout for money while investors are in search of the right businesses that will fetch them a good return on investment. In our chat with Dirk Röthig – a German investment specialist – we highlighted the goals, the probabilities for new businesses and investors, as well as the tips for upcoming businesses to locate the right investors.
How difficult is it to raise money in 2018? Do you see a change in the situation in the nearer future?
D. Röthig : Raising money requires more efforts than the usual. It is dependent on the aim of the business, type, locality, the associated risks and a lot of other unrealized deal brokers. With this said, it is important to state the availability of lots of liquidity, which can be converted into cash in the market. Using this, I was able to gather the money needed for most of my works.
What are the biggest mistakes upcoming business and companies make in the process of raising money?
D. Röthig : The usual one is having the wrong thoughts – thinking about what the investor is looking for, instead of concentrating on what to offer. Reading investor’s thoughts is difficult, but with a convincing investment story, you can easily impress the investor.
When raising money from a Venture Capitalist, how long does it take?
D. Röthig : Sourcing funds from a VC take at least six to nine months. What contributes to such timeframe include a long period of decision making, long due perseverance, and steps in contract drafting. It is not the best way to search for funds if time is of the essence. Furthermore, not every business aim is made for VC’s funding.
What is the best method to acquaint yourself to a potential investor, before getting to meet them officially?
D. Röthig : Ensure that you are real; do mock presentations with close friends and investors before meeting the real investor. Also, do not be rigid, be open to making compromises where necessary, but have it in mind not to give up idea or identity. The story has to be straightforward, and understandable to all and sundry. The precision must be such that it could be discussed in an elevator within the space of two minutes.
Even with the most beautiful ideas, an investor who does not find your personality likable would not put their money in your business. What is your advice on giving a great first impression at the first meeting?
D. Röthig : Realness is crucial again. Do not try to play the investor. If he finds you likable, then he will invest, and vice versa. If you get to impress the investor by acting, he may get to like you for that period. Eventually, after the meeting, he will still have to work with the real you. And that is where the problem lies because he wouldn’t like the real you.
Startups need more than money. What errors do companies make even after securing money?
D. Röthig : Yes, often, money is not everything. For upcoming businesses, they need to get the right skills, experience and the right people and contacts. Hence most times, it is not about getting an investor alone, you need management or a business angel as well.
Some businesses are worried that investors tend to take the hold on their firm once they provide money. What can be done to prevent such?
D. Röthig : This is more frequent when there is a conflict of interest between the investors and the startups. Though it is a big effort, solving such issues requires bringing on board an experienced advisor who can bring to the table better ways and more contractual options. After all, settling for 49% of something is better off 100% from nothing.
How do businesses value their investment before the input of a new investor?
D. Röthig : Most business owners usually overvalue their company. Popularly used are the common ways of valuation. However, it is important to note that without an additional source of money, the business is either going to go bankrupt or develop at a very slow rate.
A popular saying goes thus “it requires less effort to raise 50 million euro than 100k euro.” Why is this?
D. Röthig : “To make the first million is the most difficult” carries the same meaning as your statement. For example, if you have a company that is big enough to take a big institutional fund and needed 50million, it only means you are big already. 50 million is considered huge liquidity in today’s institutional money market. All renowned businesses are interested in getting new investments. However, with the right people, getting 50 million is less difficult, relative to gathering 100k.
With so many options for funding businesses, do you think that the part played by the traditional bank to secure a loan is over?
D. Röthig : The bank only becomes a role player when you need working capital, in the usual business course. Banks do not engage in risky dealings, and they do not wish for equity risk in your business. Over the past 15 years, I haven’t seen any business that single handedly finance itself without a bank loan.
Investments have become globally famous, but for smaller business, they are usually advised to stay near their origins and seek local finance methods. What is your take on this?
D. Röthig : Pecunia non olet, I do not bother myself about the source of the money, except of course it requires some political risk, like the Chinese or Russian money. Consequently, raising money for business in their own country might be easier for owners, but if the money is not readily available, I will accept from whatever source it comes from, as long as there is no need to worry.
Some investors seek better financial status, residence or location, and juridical position as a company. What is your advice on this, should entrepreneurs be more flexible about this, even if it leads to relocating to another country?
D. Röthig : Yes. What is important is the notion and that the business progresses; it is less important if it improves in the UK, Germany, Netherlands or France. If the investors require it for a reasonable cause, then move!
In conclusion, what advice do you have for a business that is planning on getting external financing?
D. Röthig : Find a fundraiser and adviser with a wealth of knowledge. Someone with an impressive record and experience, and with the contacts of the right people.