Pre-Investment Advisory

The Pre-Investment Advisory cluster focuses on service providers that help small and growing businesses source appropriate financing to enable growth. It aims to uncover challenges and solutions to providing pre-investment services in a quality, sustainable, and scalable fashion.

WHY IT MATTERS

Small and growing businesses (SGBs) often struggle to source capital appropriate to their needs - while entrepreneurs and their teams are focused on building the business, financing is often a challenge for companies to prioritize. Critical to healthy growth, pre-investment advisors - or service providers that support companies source and raise financing - work with companies to identify financing needs, assess the amount and type of capital appropriate given track record and potential for scale, and advise in the capital raise and negotiation process. Advisors both help raise capital as well as play an important role in supporting SGBs leverage capital they have more effectively.

However, providing sustainable and quality advisory services to SGBs can be economically challenging. SGBs can be cash constrained, need investment sizes that are disproportionately small relative to the cost of helping them raise funding, and often do not view capital advisory services are valuable to their growth trajectory. As a result, many providers of pre-investment advisory services struggle to grow, attract quality talent, and operate with volatile revenue streams (e.g. philanthropic capital and / or fees linked to successful capital raises).

PROGRESS TO DATE

WHO

Given the essential role and need for pre-investment advisory services, there are multiple stakeholders that provide these services to SGBs and it is increasing overtime. These include large international consulting firms, growth stage advisory firms that support SGBs as a part of the wider portfolio of work, smaller firms that provide pre-investment services in addition to other services such as training and consulting, incubators and accelerators, online training courses, professional services providers such as lawyers, accountants, and commercial banks, and other unpaid connectors and informal networks. Due to the diversity of stakeholders, the ecosystem is broad and often unconnected.

WHAT

Pre-investment advisors provide comprehensive services as opposed to addressing only financing needs. Scope of services typically includes investor relations, financial needs assessment and projections, and support throughout negotiations. Often advisors play an important role in other business areas including governance, staffing, process development and refinement.

HOW

In tandem with a rise in stakeholders providing these services, capital advisors are innovating with the service offering and their underpinning business models. While some providers are modularizing services at a most appropriate price point for SGBs (e.g. Blue Inventure), others are linking pre-investment to investors to improve probability of success (e.g. Iungo XL). Additionally, many firms are developing parallel and complementary revenue streams to enable work with SGBs, while ensuring sufficient cash flow to take ‘bets’ on high potential companies.