Stop Thinking About Your Business as Just a Business.

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You look at your presentation one last time.

It clearly explains your business. What you do, how you do it, who you do it for.

Numbers are littered across the slides: revenue, gross profit, expenses, net profit.

Forecasts. Maybe you’re even more sophisticated and you’ve added in sections about stress testing bad markets.

Now the important section: how much money you need.

It’s a big number. But, not as big as Bob (your main competitor) was asking for. Certainly more conservative than Julia (another business owner that provides a similar but non-competing service).

Deep breath.

In front of you sits several finance professionals. Some dressed in smart casual, some in jeans. All have their trademark Lattes in paper cups sitting next to their copy of your presentation.

Their Ivy League eyeballs scan your presentation, reducing your days of work into just a few seconds of judgement. Decisions being made based on your placement of graphics, rather than the coherence of your story.

You state your case. You present clearly. Confident.

You’ve got this.

“Your EBITDA (that’s Earnings Before Interest, Tax, Depreciation and Amortisation) is below the market average in this industry.” States the woman with short blonde hair.

Of course it is, you think to yourself. You’ve only been operating for 5 years, and you’ve been focused on growth (another way of saying you’ve been focused on increasing revenue), and there are operational issues that are set to be rectified. Have they not being paying attention?

“Our focus has been on growth and capturing key market value from our competitors. You will see that our revenue figure has grown by an average of 40% year-on-year over the last 3 years.

This increased growth highlighted some operational inefficiencies which we are addressing”.

Nailed it.

A man with a classic finance sleeveless puffer opens up: “You’re asking for an equity injection of 10 Million upfront with some milestones laid out.

I see how to you want to use this new cash injection, but I don’t see how you plan to structure this equity raise?”

Structure it? Isn’t that their job?

He continues: “look, you’re operating in a sector which is currently experiencing stress on margin health. Yes your revenues are growing, but your margins are being heavily reduced by the operational inefficiencies of this type of industry.

Wed be willing to make you an offer, say of a total check of 7 Million, all common shares with voting rights, but we will need to take over key management positions.”

Key management positions. This means layoffs and potential restructuring. What would you tell the management team that’s been with you since the beginning?

7 Million is significantly lower than you need.

Common shares with voting rights? This would mean losing key control of the board.

Don’t they see the improvements you’ve made? Don’t they see the opportunity you see? The growth? The market capture?

Why aren’t they seeing what you see; everything you’re clearly showing them?

You respond: “I understand your concerns. The changes we’ve implemented, and the strategic direction we have taken has helped us capture key segments of the market that our competitors are missing. I believe the we are far stronger as a whole than the parts you’ve highlighted. Yes there is work to be done, and with the right partner we can take our company to a different stage of competitiveness.”

You’ve got this.

Until you don’t.

“We have no doubt that you and your team have the ability. But we are struggling to see how this will generate a return that we require for taking on this risk. We also don’t have a clear picture of how an exit would be possible, and we are not looking to enter into a marriage.

Sorry, but the business case doesn’t fit our portfolio”.

Now what?

What went wrong?

You sold them your business. But they were never buying your business.

Think about what an investor actually is. They are not an operator; if they wanted to run a company they would be in your shoes. They are not a partner in the way your management team is a partner. They are capital allocators. People whose entire professional existence is built around one question:

"If I give you my money today, how much will I get back, when will I get it back, and how certain can I be of that outcome?"

These questions have nothing to do with how hard you have worked.

Your capital raise is not a pitch for someone to believe in your business. It is a financial product. A singular investment opportunity — not unlike a fund — with a defined entry point, a return profile, and an exit mechanism. Your business is the engine that drives the return. But the engine is not what they are buying.

They are buying the investment opportunity you need to have constructed around it.

Reverse the tape.

You’re back in the room.

The woman with short blonde hair has turned to page 15 in your presentation. She takes a sip of her Latte. It’s cold already. You can see by the way she crumples her mouth in disgust.

Deep breath…

“Our focus has been on growth and market capture. You will note that our revenue figure has grown by an average of 40% year-on-year over the last 3 years.

We are asking for a 10 Million equity injection.

5 Million in preferred equity with a fixed coupon of 5% and no voting rights. The other 5 Million will be a combination of 25% common equity and 75% pre-funded warrants which can be executed in tranches after an 18 month cooling off period.

No management or board positions.”

The woman sets her Latte down.

“The money will be used to fund immediate working capital needs for a new contract we have secured in Europe, with cash inflows expected in Q3 of this year.

The contract is expected to increase our revenue over the next 3 years by at least 50%, and we are prepared to payout a profit participation on your common equity position in a 70/30 split.”

The man in the sleeveless puffer stops flipping through the pages for the first time since you walked in.

“In terms of your exit; within 48 months we will initiate an internal buyout package, giving existing investors on the cap table first rights to buy your equity position in tranched packages, at a price determined by a valuation at that date. You are not entering a marriage.”

The woman with the short blonde hair exchanges a glance with the man in the sleeveless puffer. It lasts less than a second. You would have missed it if you were not watching for it.

"We will need to review the warrant terms and the profit participation mechanics in more detail. Can you leave the model with us?"

If you’re reading this, chances are you’ve been in this room.

There are ways to structure your capital raise as a genuinely compelling investment product; one that answers every question in that room before it is asked. Certificated Products are one of the most powerful and least understood tools available to operators who are ready to think differently about how they raise capital, and we will cover this in another article.