When it comes to fundraising, not seeking advice or receiving advice lacking in expertise invariably results in the same outcome: all will be slower, less certain and more expensive in the longer term.
In the early days of a startup, it is understandable why owners are reluctant to spend the time and money to build a business that is future-proof.
It can, however, come back to bite, and is an example of prevention often being (much) cheaper than a cure – as my wife, who started a small business, always says: “try to behave like a big company even though you’re a small one”.
Many entrepreneurs don’t have trusted connections to advise them when they start out, but there is a breed of law firm, which includes Mishcon, that support ambitious businesses in these early stages, which also have the expertise to take them all the way to larger company status, including their IPO.
There is a lot of machinery that can be deployed in any fundraising round and, as with any deal, it can be a real challenge to execute a fundraising well while also running the business to its full potential. It can, however, be a missed opportunity not to seek to settle matters as far as possible at the outset, helped by advisers who really know what is needed.
It is not uncommon (but nonetheless worrying, given how much time and effort they have and will put into their business) for entrepreneurs not to seek advice, especially for early rounds of funding, often seeking a “free ride” from their investor’s advisers.
Understandably, many business owners have little prior experience of the issues arising and the process and range of acceptable outcomes when undertaking their first fundraising, often doing most, if not all, of their deal-learning during the fundraising itself. Too often, it is the case that elements of a deal are only fully understood with the benefit of hindsight, once an event has brought them into play. With forward planning, including early discussions with advisers, a more enduring settlement well understood by all can be more readily achievable.
The different skills required in a business at various stages of its development can be a challenge and a cause of tension. An investing house is usually an expert in investing in its phase of corporate maturity, exiting and handing on to investors specialising in the next stage of growth. Entrepreneurs, however, often follow the business through as many stages as they can, and will be expected to do so, certainly for as long as the business is identified with them.
Entrepreneurs need to understand their own ambitions and be honest with themselves, not least because the factors that make a business exciting, and its needs for growth, change as it matures. By doing so, they will be able to manage over the longer term their ultimate exit from the business, whomsoever they hand their interest on to.
The mantra “the day you buy is the day you sell” has much to commend it, and seeking to take steps to protect a business, whatever stage it is at, in advance of undertaking the next stage of hard work in building it, is invariably the best course of action.