Fundraising
Before You Raise Money, Ask Whether You Really Want Investors
David Horne explains why equity hoarders and frugal leaders struggle with outside capital, and what a growth business needs ready before it meets an investor.
How to traverse the uneven playing field and secure funding to grow your business with David B Horne
Video from Women's Business Club.
Generated from the canonical interview transcript and validated against source data by Guests on Air.
What should founders do before they start raising investment?
Founders should first decide whether they truly want outside shareholders, confirm they run a growth business rather than a solo or lifestyle one, and weigh debt against equity with care. Then they need a written business plan, five years of financial projections and a tight deck of twelve slides before they research investors who fit their stage.
Many founders treat fundraising as the obvious next step once a business starts to grow. David Horne, founder of Funding Focus, argues that the first question is far simpler and far more personal. Do you really want to raise money at all, and are you ready for everything that comes with taking on outside investors?
Speaking at a Women's Business Club conference, he set out the questions he has seen trip up entrepreneurs over twenty years of work, a career in which he has raised more than £120 million. Some founders are simply the wrong fit for outside capital, and he believes it is kinder to say so before anyone spends months chasing investors.
His talk moves from mindset to mechanics. It covers the two kinds of founder who should avoid fundraising, the four types of business and the one investors back, the real difference between debt and equity, and the assets a founder needs before a first meeting. The result is a practical checklist for any owner weighing up outside money.
Key takeaways
- Equity hoarders who want full control should not raise capital, because investors expect a real say in strategy and the board.
- Frugal leaders must accept that raised money exists to be spent wisely on the strategy agreed with their investors.
- Investors back growth businesses, while solopreneurs and lifestyle businesses rarely attract equity funding from outside backers.
- Debt avoids dilution but brings repayments and covenants, while equity sells a stake that pays back only on a sale.
1. Decide whether you really want outside shareholders
Horne calls the first kind of founder who should avoid fundraising the equity hoarder. This is the owner who wants to keep every share and every decision. He has no quarrel with that choice, but he is blunt about the consequence. Raising capital means inviting new shareholders into the business and giving them a voice on strategy, often with a seat on the board of directors.
To show why sharing can still pay, he walks through an example. A business worth £3 million takes £2 million from an investor, leaving the founder with 60 percent of a £5 million company. After granting options to a strong technology chief and five years of growth, the company is worth £10 million and the founder's smaller stake is worth almost twice the original holding.
The second kind is the frugal leader, often a founder who has bootstrapped the company on personal money and early sales. Careful spending makes sense in that phase, yet Horne has watched many founders raise money and then hold it back. His point is that investment exists to be spent wisely on the agreed strategy, such as hiring the best finance, operations or technology leaders available.
2. Know what kind of business you are running
Horne sorts companies into four groups: the solopreneur, the lifestyle business, the growth business and the large business. A solopreneur can usually reach only debt, often backed by a personal guarantee, because all the risk sits with one person. If a solo founder wants equity, he advises building a small team first so that an investor sees more than one individual carrying the company.
Lifestyle businesses can be very profitable, but they are run to fund the way their owners want to live rather than to grow. Investors, he says, will not put money in to support somebody else's lifestyle. Growth businesses are different. They are where venture capital and angel investors focus, because backers can add money, expertise and contacts and expect a significant return over three to ten years.
Once a founder knows they are building for growth, the type of money matters. Debt is repaid with interest over a fixed term and often carries covenants, such as limits on dividends or a duty to send lenders quarterly accounts. Equity sells a stake with no duty to repay, and investors see a return only at a sale. His book Funded Female Founders covers each route in more detail.
3. Have your fundraising assets ready before you pitch
Before approaching anyone, Horne wants three assets in place. The first is a written business plan that sets out the strategic aim and the challenges ahead. The second is five years of financial projections. If nobody on the team works in finance, he urges founders to bring someone in, because he is certain they will not raise funding without solid projections behind the plan.
The third asset is the pitch deck, which he limits to twelve core slides covering the cover, elevator pitch, team, problem, solution, traction, target market, competition, financials, the investment ask and exit plan, use of funds and contact details. One London venture firm he knows received more than 8,000 applications in a year, so a deck that fails to grab attention in thirty seconds rarely gets read.
Research matters as much as the deck. Horne suggests building relationships with investors long before money is needed, then asking founders already backed by a target fund for a warm introduction. That same firm made only 16 investments from its applicants. At a first meeting the goal is fit and chemistry, and when terms are negotiated, founders need lawyers and accountants who understand deal making.
