Acquiring financing is a process that requires proper planning based on the current economic conditions, especially in times of crisis. In order to increase the chance of obtaining capital to finance business activities on favorable terms, it is necessary not only to develop a solid business model, but also to structure the process, taking into account the investor’s perspective – a bank, a fund or an industry investor. What challenges should we expect and how can VDR support the process of obtaining financing?
In the current economic environment, financing is often becoming more expensive and less accessible. This is especially present in the area of SMEs, which can rarely afford to secure adequate funds for development internally. The problem is mostly related to the manufacturing industry – challenges have arisen here due to the pandemic, rising inflation, and the consequences of Russian aggression in Ukraine.
In 2020, banks tightened the requirements for granting loans to entrepreneurs. This includes lower overall loan amount, the requirement to achieve better financial results or a shorter total loan period. Companies looking for ways to raise funds find themselves in a difficult situation, especially entrepreneurs relying on complex supply chains, more expensive raw materials, and those for whom predicting how the profits of their companies will develop over the next few years is difficult. The rise in commodity and energy prices in the following years made the situation even more disadvantageous.
However, the changing economic landscape also influenced the very process of obtaining financing. It has made banks, investment funds, private investors, or business angels change their approach. The pandemic increased the importance of digitization, the scope of remote proceedings, and the information security in fundraising.
Noteworthy, the importance of remote operation has not been diminished with the decline in the epidemic threat. The world of finance has adapted to online working as much as technology companies have, which nowadays sometimes even resign from renting office space and start operating 100% remotely.
Digital structuring of fundraising processes has become one of the most important factors to optimize it. Today, the speed, convenience and safety of fundraising projects are more substantial than just a few years ago. These characteristics provide additional security and mean lower costs for the financing institutions. How does Virtual Data Room perform as a tool to meet these needs?
Acquiring capital for financing a business activity is a project-like task. Entrepreneurs define goals, threats and deadlines, the scope of work and the degree of involvement of external entities in this type of projects. Success depends – apart from the meritoric side – on how well planned and structured the process of sharing the documentation and what will be its scope.
Virtual Data Room is a platform that ensures transparency, security and availability of materials and documents at every stage of obtaining financing.
Thanks to the VDR solution, it will be possible to:
The VDR system enables the creation of a transparent document structure, which in the case of financial projects will allow for easier management of financing stages. Separate folders may contain an investment teaser, available to all potential investors, as well as more detailed investment materials and a business plan. If the investor is interested in the project after reading the teaser, it only requires granting the appropriate access permissions to the documentation loaded in subsequent folders in order to further share them.
The entrepreneur and their advisers will be able to accurately determine the investor’s interest in each file made available. Activity reports in VDR allow, among other things, to check who and when logged into the system, what files were opened, how long they were browsed, or which files were not opened at all. This information will allow for a substantive assessment of the proceedings and the intentions of the investor’s party. VDR reports are exportable to Excel format, so they can be easily attached to project reports.
Further stages of the financing process, e.g. during Due Diligence, can be continued in the same instance of the VDR platform. Communication regarding the project is possible thanks to the Q&A module, with the help of which the investor can request additional documentation and conduct a Q&A session. Practically, the entrepreneur does not need to conduct additional email communication. Regardless of the number of investors invited, the process will be centralized, documentation easily accessible from anywhere online, and the access to it – strictly controlled.