There are many points to consider when bringing on board a professional investor but what I learnt was that there are really only a few that are truly important.
(1) Know why you are doing it
Having spent the last 12 months engaged in a process to bring on board external investment I can honestly say that it always takes more time and energy than you can ever imagine. This will only distract you from your most important task – running a successful business – so you have to be very clear at the outset why you are doing this.
There are many ways to finance and grow a business and an external, professional investor, is only one. Typically, this route best serves those businesses that have a requirement to grow fast and need additional cash to invest ahead of the curve. If this isn’t what you are trying to do then make sure you look at all alternative options before you get on this train as it will suck your energy, time and in many cases result in you giving up your control. These are all things which impact not just the business, but your role in the business and your enjoyment of what you do. So, be careful what you ask for and certain of what it means.
(2) Create your story
If you decide that external investment is the way ahead then you need to be able to articulate this. Investors get hundreds, some thousands, of approaches by aspiring businesses. If you can’t articulate why your business is unique, and how the investment you are looking for will help you succeed in a way you can’t without it, then you won’t get past the front door. Being able to articulate this verbally, in writing and in a clear and simple financial model is essential.
There are lots of guides to help but if you are after a serious amount of money you are probably best placed to approach a professional advisor to help you. It is very advisable to run a selection process and always best to engage with advisors who come with a recommendation. If you engage with an advisor the most critical thing is to ensure they can point to numerous examples of where they have successfully helped a business, of a similar size and in a similar market, raise investment. The contacts and reputation of the advisor you appoint will speak volumes to prospective investors. They can be the reason you get, or don’t get, initial meetings so select with care.
Read more on hooking an investor:
- How to survive investor due-diligence
- Six steps to getting your brand investment-ready
- Avoid getting into bed with the wrong investors
(3) People buy people
Investors are simply a group of people, with huge experience of investing in companies. Like us all, people buy from people. If you speak to any investor they will all tell you the number one thing they invest in, beyond anything else, is the management team.
You can have a great business but if the management team isn’t strong then they won’t invest. This is how they protect their investment. Every business will face challenges and opportunity but it’s the strength of the management team that will determine the outcome. For this reason you have to be honest with yourself about the strength of your team.
If it’s not right then consider making the necessary changes before you go out to look for investment. You only get one real chance so only take it if you know your team will make the grade.
Investors will only invest if they have total confidence the management team can deliver. Even when they do, they will reference check every aspect of the management team so it’s not just what you think that’s important, only what you can evidence.
(4) Get ready to be interrogated
Most entrepreneurs are passionate about their business and what they do. It’s natural to talk about all the positives but investors will spend more time on the negatives. We have all seen how a pitch on BBC’s Dragons Den starts off well and then rapidly goes downhill when the person pitching can’t answer the questions. Well, think of this level of interrogation over a period of months.
Before you start any investment process start with asking yourself “why wouldn’t I invest in my business?” Any good investor will dig deep and uncover risks and issues so you need to know what they are and have a clear plan to address them. Even if you don’t take on investment this is a great discipline and will only make your business stronger.
So, the road to investment is not easy but it may be paved with gold if you get it right. Remember, gold is a rare commodity, as are good investors, so make sure you get it right first time. And then there is luck, there is always luck, and we can all do with some of that… just don’t bet your business on it.
Arlene Adams is the founder and CEO of Peppermint Technology, the award-winning legal and dispute management technology provider.
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