Are you truly ready for fundraising?

This is the first article in a short series about Fundraising.

Founders generally assume that their business is an attractive investment target, rarely questioning if their venture is truly ripe for investment. Unfortunately, this is rarely the case.

In my years working in banking with mature companies, I’ve seen again and again the same thing happen.  Financiers often complain because there are plenty of funds available but there are not enough bankable businesses. The term bankable business qualifies a business that is ready to receive financing (typically. debt instruments).  In fact, when working on a deal, a lot of time is frequently spent on getting the business truly ready for financing.  Sometimes, it comes down to basic things (adjusting the financial model, preparing the financial statements), other times it requires elaborate financial structuring to mitigate risks.

If we draw a parallel for early-stage companies, the term investable business is used to qualify a business that is ready for receiving investments (typically equity and similar instruments).  Sometimes, funds are available but businesses are not deemed investable by the class of investors who are active in the market.  What helps in that case is the development of startup studios that can accompany the startup from concept to investability.

In both cases, the first problem to solve is not the lack of funding, but the lack of readiness for funding.

Bankable, Investable, what does it mean?

Bankable

A business is bankable if it generates stable and recurring positive cash flow. A bank loan is typically characterized by predictable repayment schedules, which is why a bank want to see stable recurring cash flow that are sufficient to repay the bank loan.

Typically, bank loans will fall under a mortgage style repayment plan that require equal payments until maturity, which is why bankability typically focuses on the “stable and recurring”nature of the cash flow. Note that debt repayment schedules can be “sculpted”, i.e. adapted to the cash flow projections of a business: it could be growing with higher repayments at the end. In that case, the bank is taking more risk and should charge more for it…

Investable

An investable business must show a potential to generate a growing positive cash flow that will enable the investors to not only recoup their investment but also achieve a significant return (think 10x or more for Venture Capitalists)…

Bankable? Investable? Same boat!

I argue that bankable and investable are loosely the same thing… Why would I defend this outrageously simplified stance?

For two reasons: it’s a crystal ball problematic (nobody knows the future for sure) and it forces you to focus on the common denominator: demonstrating an ability to generate positive cash flow.

Crystal Ball. There is a speculative aspect to demonstrating both the “investable” nature of a business and the “bankable” nature of a business. Why? In terms of probabilities, I like to say that there are two states: certainty (0% and 100%) and uncertainty (everything in between). Nobody can be sure of growth projections, even more so when they show a significant hockey stick type of growth like the ones that investors like to see.  The truth is that there is no crystal ball that can assure stable and recurring cash flows even for a mature business.   Sure, you can assume that it is less risky to lend money to a mature business than a startup. That’s why banks thrive with offering loans to mature businesses. But context matters, markets change, risks emerge and teams evolve. Certainty is never a given in the business world. In 2009, would you rather have invested in the 72 year-old Polaroid or in the startup Uber? Polaroid filed for bankruptcy just 3 years later. Uber went on to have a market capitalization of more than $130 billion dollar in 2024… Ready, player, go!

So, can you demonstrate that you are ready to generate positive cash flow? Stay tuned for my next article on bankability...