At the early venture capital stage, investors base their judgement largely on high level instinct; the passion and experience of the founders, the size of the market and the innovation of the product approach. At the scale-up stage, the core judgement is whether there is the potential to create a longer term, sustainable and valuable business and to set realistic value creation benchmarks along the way. For small businesses, it will be rare for large purchasers to make an inbound approach unless you make a strategic decision to build your profile and relationships. For many corporates, a commercial relationship will be required before a transaction can be justified. Building multiple relationships keeps options open and gives the best, rounded insight on value creation.
“Value creation is an outcome of building a successful business, not an objective to be set in its own right.”
Mike Reid, Senior PartnerView Profile
Knowing your options
A successful scale-up will have lots of funding options. A company with few funding options is not likely to succeed. Scale-up company boards must have experience of and network into funding alternatives (internal and external equity rounds, venture debt, working capital facilities, its own customers and ultimately, profits), and should understand the company specific pros and cons of each. One of the most common mistakes is pitching your story too early to investors who say they are intrigued but don’t shift to being convinced. Thoroughly test the core thesis you are asking your audience to pitch to their investment committee. And thoroughly research their key investment criteria, as a debt provider, corporate investor, scale-up investor will all have very different measures.
“Funding requires a continual questioning of whether the current approach is fit for purpose for the journey ahead.”
Steven Dunne, Senior PartnerView Profile
Frog and 360 Leaders host event discussing debt funding options through the venture capital cycle
Building resilient businesses
A core part of the Frog philosophy is helping management to build businesses that can become self-sustaining longer term. Ownership may change but the aim is to create a thriving organisation that lasts the test of time as a business entity not just an innovative concept. This builds on all the other elements of the Scale-Up Methodology, especially clarity of annual strategic plans, providing an action plan for executing new growth initiatives and delivering increased market penetration in a well-researched way. The most effective scale-up CEOs drive aggressive growth, not at all costs, but by judging their ability to attract the right level of resource to fuel the plan, thereby keeping the destiny of the business in the hands of the executive team.
“Making difficult decisions to address the changing needs of a business is critical to its survival and success.”
Jens Düing, Senior PartnerView Profile