Why I start with the exit, not the raise

When a founder first talks to me about raising money, they usually want to discuss the raise: how much, from whom, how fast. I understand why. But I have learned to start with the exit, not the raise. Before anything else, I want to know how the investors’ money is going to come back.

That habit comes from where I started. I began in 2006 in the City of London raising money through bonds and loan notes, and spent about ten years based in Canary Wharf. On the debt side, the exit is not a vague hope. It is a date written into a document. You learn quickly that a raise is only as good as its ending.

Every pound has to come back somehow

Investors put money in expecting to get it back, with something on top. There are only a few ways that happens:

• The company repays it from cash it generates.
• The company refinances, replacing old money with new.
• The company is sold.
• The company lists, giving investors shares they can sell.

Each route suits a different kind of business and a different kind of investor. What I learned is that if you do not choose a route at the start, you end up having one chosen for you, usually at the worst moment.

The exit decides the instrument

Once you know how money will come back, the right way to raise it usually becomes clearer. A business with steady cash flow that can repay over a few years may suit a loan note or bond. A business that needs years of investment before it makes money is probably an equity story, because there is nothing to pay a coupon from.

The pattern I saw again and again was founders choosing an instrument because it was available or familiar, then discovering it did not fit their exit. Debt raised by a company with no way to repay it creates pressure that harms the business. Equity sold by a company that could have repaid a loan gives away ownership it did not need to.

How the money comes back should decide how it goes in. Not the other way round.

Listing as an exit, and as a fix

I have taken three companies public through LimeTree IPO, and a large part of my work has been about using a listing to clear debt. A listing can give a company access to new capital and give earlier investors a route out. But it does not happen quickly, and it does not suit every business. Our piece on the IPO timeline shows how much preparation it involves.

Where a listing worked well, it had been part of the plan for a long time. The company had built its reporting, governance and investor relationships with that end in mind. Where it was treated as a last-minute escape, the road was much harder.

Planning the end is a form of respect

Investors notice when a founder has thought about their exit. It tells them you see the deal from their side. It also changes the conversation: instead of asking whether you will pay them back, they can discuss how and when.

If you are raising through loan notes, that plan should include the maturity date and what you will do if repayment from cash is not possible by then. Our guide to planning loan note repayment sets out the options.

Three questions to answer first

1. How do you expect your investors to get their money back, and roughly when?
2. What would have to be true about the business for that to happen?
3. If that route closes, what is your second option?

Write your answers down before you write a pitch deck. They will shape the amount you raise, the instrument you choose and the investors you approach. In my experience, the raises that end well are the ones that started with the ending.

This article is general information, not financial, legal or tax advice. If you are planning a raise, talk to BDM Capital.

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