Looking for external investment in your business for the first time can seem like a daunting process, but investors are people too! No matter what your business, or what kind of investment you’re looking for, there are some things that all investors have in common when it comes to deciding whether or not to sign that cheque.
What do investors look for?
People invest in people, so if you’re looking for investment, make sure you have a strong team and you know how to point out your strengths.
- What expertise and experience do you have? How are you an authority in your trade/industry?
- Who is advising you? Who in your business has experience of starting a business, or of working with investors?
- How well do the team members work together?
Investors will be looking for market potential – how big the potential market is for your business, both now and in the future.
- Who else is in that space, and what makes you different? Or if nobody else is – why not, and how can you protect your position?
- Is your proposition scalable? How would it work in markets of different sizes, ages?
- What are the main risk factors and how are you protecting your business against them?
- What are your routes to market, and how much momentum do you have?
- Do you already have commercial traction? How well tested is your proposition?
They’ll be looking for a solid financial plan, which provides them with several metrics against which they can measure the value of your business. Commonly, these include:
- Historic data – turnover, profits, cashflow.
- Financial plans – in detail for the next twelve months focussing on cashflow, and at least 3 years of projections.
- An analysis of how the investment you’re seeking will be used.
- Detail around the costs for business-critical processes – manufacturing/producing your goods and/or services, acquiring your customers, and people.
Alongside all of that sits the ‘x-factor’ – the thing that makes an investor really believe in you, and your business.
Learn the ropes. What type of investment is right for you, and who provides it? Do they invest on the scale that you’ll need? Do your research here to make sure you’re considering all your options, not just the most obvious ones.
Speak to funders early. You don’t need to be perfectly prepared, as long as you make that clear to them. But if you don’t, you could end up doing a year of work only to find out you’d missed a critical point that makes your business hard to invest in.
Get to know potential investors. This is a person or a business that you’ll be working closely with, so it’s vital that you can work together. You should share the same visions and goals for your business, and be aware of each other’s appetite for risk and expectations for reward. The better you know your potential investors, the more closely you can align your offering to meet their needs.
Be yourself. You’re far more likely to find an investor who is a good fit, and with whom you can have a positive and constructive relationship, if you are yourself. You should be the biggest asset your business has.
How to work with an investor
Ian Richards, director at Northstar Ventures, who run the North East Proof of Concept fund amongst others, says: “Investment Managers, like anybody else, want to work with teams that they have a good relationship with. For us this means having mutual respect and open and honest communication.
“Northstar is one of the most active early stage investors in the UK, and our Investment Managers are experts at what they do – finding great investment opportunities and supporting businesses as they grow. But we’re the first to admit that we can’t be experts in every sector or marketplace!
“This means that as an entrepreneur, it’s your job to know your product or service and to be able to explain the opportunities, potential challenges and ways to overcome them. We respect your expertise in your sector.
“It’s also important to remember that your relationship with your investor continues after the pitch is over and an investment agreement is signed. When we invest in a company we see it as the start of a long term relationship – one where we continue to provide support and advice as your business grows. This is why good communication is so important – running a business is rarely a smooth road but if you find the right investor, you won’t face any challenge alone.”
We have a whole section of the Growth Hub dedicated to helping you find the finance and funding you need for your business. Take a look at all of the options available.