Capital raising is a crucial strategy for companies in the security industry looking to expand, innovate, and strengthen their market position. Whether a manufacturer of unmanned vehicles or protective gear, securing additional funding can open doors to new opportunities and long-term growth. From scaling operations to investing in cutting-edge research and development, businesses must navigate various steps to attract the right investors and secure financial backing. Understanding the key motivations behind capital raising and the strategies for success can help security firms thrive in an increasingly competitive landscape.
Key Reasons for Raising Capital in the Security Industry
There are significant reasons why a manufacturer of unmanned vehicles or protective gear wants to raise more working capital.
Expanding Market Reach
For a drone equipment maker, raising capital is essential for expanding market reach. The security industry in Australia is growing, and there is a substantial opportunity for companies to capture new customers both domestically and internationally. With additional capital, companies can invest in marketing, sales teams, and partnerships to penetrate new markets and enhance their market presence.
Research and Development
Innovation is crucial in the security products sector, particularly for companies developing cutting-edge anti-drone defences. Raising capital allows these companies to invest heavily in research and development (R&D), enabling them to stay ahead of the competition. Advanced R&D efforts can lead to the creation of more effective and sophisticated drone countermeasures, ensuring the company remains a market leader.
Scaling Operations
Companies must scale their operations efficiently to meet more demand. This includes expanding manufacturing capabilities, hiring additional staff, and improving supply chain logistics. Raising capital provides the necessary funds to support these efforts, ensuring that the company can grow sustainably while maintaining product quality and customer satisfaction.
Strengthening Financial Position
Raising capital can help a company reinforce its balance sheet, reduce debt, and improve cash flow. This financial stability can attract more investors, enhance the company’s credit rating, and provide a cushion against economic uncertainties.
Steps to Raising Capital
Capital raises revolve around executing certain steps to help push the need through. This may also apply to companies working in the unmanned vehicles sector.
Assessing Capital Needs
The first step in raising capital is to assess the company’s financial needs. This involves identifying the amount of capital required and determining how the funds will be used. A comprehensive financial plan should outline the company’s growth strategy, projected expenses, and expected return on investment.
Preparing Financial Statements
Accurate and up-to-date financial statements are essential for attracting investors. Companies should prepare detailed financial documents, including balance sheets, income statements, and cash flow statements. These documents provide potential investors with a clear understanding of the company’s financial health and growth potential.
Identifying Funding Sources
There are various sources of capital available to companies in the Australian security industry. These include:
- Equity Financing: Selling shares of the company to investors in exchange for capital.
- Debt Financing: Borrowing funds through loans or bonds, which must be repaid with interest.
- Government Grants: Applying for grants and subsidies offered by the Australian government to support innovation and growth in the security sector.
- Venture Capital: Securing funding from venture capital firms that invest in high-growth companies.
Creating a Compelling Pitch
To attract investors, companies must create a compelling pitch that highlights their unique value proposition, market potential, and growth strategy. This pitch should include:
- Executive Summary: A brief overview of the company, its products, and its market position.
- Market Analysis: Detailed insights into the security industry, target markets, and competitive landscape.
- Growth Strategy: A clear plan for achieving growth, including marketing, sales, and expansion initiatives.
- Financial Projections: Forecasted financial performance, including revenue, expenses, and profitability.
- Management Team: Information about the leadership team and their experience in the industry.
Engaging with Investors
Engaging with potential investors is a critical step in the capital-raising process. Companies should network with investors, attend industry events, and participate in investor presentations. Building strong relationships with investors can increase the likelihood of securing funding and support for future growth initiatives.
Negotiating Terms
Once potential investors express interest, the company must negotiate the terms of the investment. This includes determining the valuation of the company, the amount of equity or debt to be issued, and the rights and obligations of both parties. It’s essential to seek legal and financial advice to ensure that the terms are fair and beneficial for the company’s long-term success.
DroneShield: A Case Study in Successful Capital Raising
DroneShield, an ASX-listed drone countermeasures company primarily based in Sydney, provides a practical example of successful capital raising in the security industry.
Established in the USA in 2014 under a US$50,000 crowdfund, DroneShield has achieved significant success in ten years of trading. Its DroneGun Tactical drone-jammer rifles, in particular, have been used for security efforts in events such as the 2018 Commonwealth Games, 2019 Southeast Asian Games, the 2022 World Economic Forum summit, and Brazilian President Luiz Inácio Lula da Silva’s 2023 inauguration. Some of DroneShield’s products have also been fielded by the Ukrainian military in combating Russian attacks. The company also won in the 2021 Australian Export Awards.
DroneShield executed three capital raising earlier this year.
Capital Raising: Part I
The first one in April 2024 concerned a Fully Underwritten Placement that resulted in $70m raised, plus a share purchase plan for $5m. The news came as one of its partner firms in Belgium and Luxembourg landed a new counterdrone supply contract with the NATO Support and Procurement Agency, resulting in shares going up to $1.12 on the ASX.
Capital Raising: Part II
The second raise in late May 2024 was worth US$3.8 million in US government grants.
Capital Raising: Part III
The third capital raise came in late July 2024. At the time, DroneShield reported that it finished FY24 with $146m in funds and had no significant liabilities. The company halted ASX trading – with the stock price at $1.39 – to set up the raise. The capital raise generated $120m but not after the share price slipped to $1.17 when trading resumed on 1 August 2024.
DroneShield broke down where the new capital raise would be spent. Around $90m is set for R&D of AI solutions for new counterdrone products, $20m is marked for M&A financing, and $10m for working capital and offer expenses.
Conclusion
Successfully raising capital is essential for security industry companies seeking to expand their market reach, drive innovation, and strengthen their financial position. With the right funding, businesses can scale operations, invest in advanced research and development, and enhance their competitive edge in both domestic and international markets.
By carefully assessing their funding needs, preparing strong financial statements, and engaging with the right investors, companies can secure the resources necessary for sustainable growth. Whether through equity financing, government grants, or venture capital, selecting the right funding strategy is crucial to ensuring long-term success.
As seen in DroneShield’s capital-raising journey, strategic funding can fuel advancements in technology, support operational expansion, and enhance global competitiveness. Their success highlights the importance of well-planned capital-raising efforts in driving business growth and market leadership.
For companies in this evolving industry, a well-executed capital-raising strategy can be the key to long-term success in a rapidly changing security landscape. With careful planning and the right investment approach, businesses can position themselves for future opportunities and sustained growth.
DISCLAIMER: This article is for informational purposes only and does not supersede business advice. The information presented is based on the most accurate data available at the time of writing. AVANTE PARTNERS has no relationships with any manufacturer of unmanned vehicles or countermeasure equipment, and does not endorse or disparage their products.
