Our key feature article, titled “The Capital Cycle of a Growth Company”, looks at two key related issues that many growth companies typically face with insufficient consideration: 1) Who will be their next investors? 2) What will their investors expect from in return? The author, Antony Gifford, has had a distinguished career as an investment manager for 19 years, having worked for Hardman Global Investors, Deutsche Asset Management and Flemings.
This article attempts to help management of small growth companies consider one of the crucial aspects of their role - the need to raise equity capital. It is hard to over-stress the importance of this role. Many brilliant business ideas fail for the simple reason that they run out of cash. Failure to raise sufficient capital is one of the major reasons that half of all start-ups fail within five years.
There are some simple lessons that should reduce the failure rate significantly. However, running the business on a day-to-day basis while communicating clearly with an increasingly diverse and demanding shareholder base can be challenging. Failure to appreciate and address the significance of both aspects can have a material negative impact on a company’s valuation.
We will try to address some issues around what we call ‘the capital cycle of a growth company’. By this we mean the process that all companies go through to raise capital from the appropriate sources as they grow and mature towards a point at which they generate, rather than consume, capital. Every company goes through a series of different stages in this life-cycle. Consideration must be given to how capital needs can be met, and the need to think about who is the natural investor in a company at various stages in its life must be highlighted.