It’s Not All Doom and Gloom - How to Bring Investors to Your Table
Image via @paul_milinski
Here’s Our Top Tips to Help You Raise Money in the Current Climate
It’s no secret that the current economic climate is all over the news. There is inflation, rising energy prices and reports that consumers have to tighten their belts. Looking past your day to day life, what does all of this mean if you’re trying to raise money for your start-up brand. Fortunately, it's not all bad news in the beauty and wellness industry compared to some other industries. Brands are still receiving funding but there are few things to know!
First the good news. Beauty Matter released its Q2 deal flow report and the beauty industry was more resilient than the global average. John Cafarelli writes that the global deal activity was down 18% compared to the same period last year, however, the beauty industry’s deal activity was down only 2.9%. Additionally, the reduction in the beauty deals tended to be on the later stage deals, such as mergers and acquisitions and majority stake purchases. While this is good news, this does not mean that your early stage fundraising experience will be the same as it was before.
Recent conversations with investors have highlighted new specific concerns that they want to see founders address. First, what is your cash position? This goes beyond how much cash you have in your bank account. You’ll need to be able to describe your cash flows, the money leaving and entering your business. Is this positive at the moment? If not, how long can your business operate until it runs out of money? You’ll be expected to know the main drivers of your cash cycle and how susceptible you are to changes in the timings. Things to consider are what payment terms do your retailers and suppliers have and can these be re-negotiated?
After understanding your cash flows, all investors will want to see those movements in a financial model. Models are not an exact science but are built on a foundation of assumptions. These assumptions will be scrutinised more heavily in today’s market to see if they are still applicable. Key amongst the assumptions is, cost of goods. Investors know that prices are rising across the board. When was the last time you talked to your manufacturer, are they still able to honour their pricing? Are your cost assumptions still valid? What about your own pricing? Do you still have the correct margins for your retail plan? If you want to be very thorough, you can prepare worst case scenarios to show what sort of negative circumstances your business is able to survive.
Finally, it all boils down to how resilient your business is. What are you doing to make sure that when consumers tighten their spending that your products are still purchased? A lot of this resiliency can be demonstrated through customer loyalty. How you cultivate this loyalty is important and something you should be able to talk to. How essential is your product? Talk about how consumers see it as a need vs a want, a necessity vs a luxury.
At the moment the overall stock market is depressed . Everything is linked, the people who provide money to VC funds are providing less funding, which in turn means VCs have less money to invest. Currently VCs are still quite flush with cash, but they are entering uncertain times for fundraising their next fund. They are becoming more cautious with the cash that they have on hand. We’ve heard estimates that the investment pull back could last from a couple months, think 2020 (COVID), 18 months, think 2008 (the great recession), or three years, think 2001 (the tech bubble). The good news is, the earlier your brand is, the easier it is to show growth. Showing 10x sales growth by going from 100k to 1m in sales is possible in almost any climate. Going from 100m to 1bn sales is a completely different story. Finally VCs are investing for the future of your business, they know that this period of uncertainty will pass. You just need to show them that you can survive it.
If you need extra support creating your financial collateral and reaching out to applicable investors please contact Gregory - gregory@constellarconsultancy.com