~ by Rowan D
Entrepreneurs and teams who have navigated the capital-raising journey can attest that being a compelling storyteller alone is not enough. Rather, you need to be able to weave a combination of financial figures that will show a return for investors while at the same time sharing a story that separates your application from the crowd.
As a Chief Financial Officer (CFO) the “logic” side of the equation is where we naturally gravitate but we recently hosted a webinar on this subject and it was very interesting to hear how the “magic” side is sometimes neglected. What was interesting about the case study shared on this particular webinar was that it was focused around a lending application via the Capitec SME lending offering. The CFO would naturally assume that Capitec is all about Credit Committees and the hard numbers but the bank also had a strong emphasis on the role of the Relationship Banker in this interaction.
One of the key phrases that we focus on is that the investment strategy comes before the financing or capital-raising strategy. If we can get a clear understanding of the Investment strategy, we can then look at how we make the financing strategy align.
If we unpack the logic side of the equation, this is where your CFO should come to the fore. This is not simply a case of putting together a credit application and then throwing it out to all the lenders and hoping for the best. Instead, you are seeking a 'sniper' who can customise the application for a specific credit committee. Not only do they need to understand the lender and their requirements, they need to be able to put together credible forecasts and they need to understand both the credit-worthiness of the business and the entrepreneurs behind the scenes.
The current high interest rate dynamic means that the cost of capital is arguably unnaturally high and this in turn means that the numbers and forecasted returns need to be both bullet-proof and attractive to the lender.
This is where the “magic” and the softer elements of the fundraising process comes in. The lender wants to know who they are dealing with and the substance behind the business. While lenders may be risk-averse and wary of businesses and entrepreneurs who have had historical mishaps, what they will value is transparency and what the entrepreneur and business have learnt from negative experiences.
There is often a cynical view of bankers with the old saying that a banker will only offer you an umbrella after you’ve been soaked in the rain, but the reality is that businesses can also invest more in communicating with their Relationship bankers – people want to work with the people they know.
This is a key soft-skill that CFOs – either internal or outsourced – can bring to the party.
We have a very good recent example of this with a South African client who did 70% of their revenue offshore. Normally, their domestic bank would not look at factoring their international debtors book as they don’t typically like to do cross-border transactions.
This is where the CEO could turn to his CFO – his “wisdom-player” – who can not only speak the language of the bank, he could leverage a strong working relationship. The client accessed their finance – which translated into significant revenue growth and the bank themselves enjoyed a profitable transaction.
Raising capital in South Africa is incredibly challenging at the moment – the cost of capital is high and growth in many sectors is anaemic. Lenders are trying to balance risk and reward and it will take a combination of logic and magic to unlock the funding that will take your business to the next level.
Work with Rowan D - get in touch at email@dna.co.za and we will connect you in no time!
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