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How to raise angel and venture finance

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1. Never go out for investment too early
It’s very easy to rush headlong for investment as a fast-track route to success – many entrepreneurs have felt that eureka moment when they can see their business idea taking off, and head straight for the nearest potential sources of funding. It’s only later, when they have expended lots of time and energy, that they find out that their business simply isn’t ready for investment (not that it’s a bad idea, it’s just not ready). Many then go back to basics and truly get their idea off the ground – others, sadly, give up.

Just because you believe in your business idea, it doesn’t mean investors will. If you have not minimised the investor’s risk and are unclear about your plans, it will blow your credibility immediately. That’s a huge problem as it’s very difficult to get an investor to re-visit a deal he or she has already rejected. If, by some very slim chance, the founders do get investment on a deal that is not ready, the chances are the valuation will be very low.

But how early is too early? A big problem is that many entrepreneurs become obsessed with the business plan, and think that’s all they need to pitch for investment. But investors do’nt invest in business plans – they invest in actions already taken that can show that the business could succeed.

2. Spend more time proving the concept works rather than working on your business plan
A few orders or a strategic agreement with a credible company could be worth much more than writing a 100-page business plan. It may seem obvious, but put yourself in the shoes of the investor. If you had money to invest, would you sign a very large cheque on the basis of a slick presentation or would you go for a business idea that has real money, products, services and partners in place? Remember, you don’t have to be making a small fortune before going for investment, but ideally you can illustrate the potential of the business in reality.

3. Focus 80 per cent of efforts on the executive summary
Keep business plans concise – no more than 20 pages. The key part though is the executive summary; this adds a lot of value if done well. Do not see it as a summary of the full plan (this would be too dull). The executive summary is a marketing tool; a compelling document that will get you that critical first meeting with an investor. Therefore put all the credible elements of your plan in the executive summary in there, such as your milestones to date, awards, proof of concept, team, USP, business model and critically what challenges in the marketplace your business is solving.

4. Be crystal clear about your USP
If you cannot articulate a clear USP or how you are better than the competition in one or two lines, you are likely quickly to lose interest from an angel investor. Also you must ensure that your USP is (ideally) protectable or at least sustainable. Many entrepreneurs struggle with the concept of “unique” entirely, and that’s quite understandable as there are really very few new business concepts out there which are the sole example of their kind, unparalleled and incomparable. Indeed, being unique entirely is a mixed blessing. It means either no one has thought of what you do, or they have and decided there was no market for doing it. In reality, your business doesn’t need to be unique, it just needs to be capable of delivering a good return for your investors.

5. Borrow team credibility by recruiting experienced non-exec directors
There are many companies out there with good ideas which tick all the boxes, except one: they lack  a credible team. Many investors will back the jockey more than the horse and look for a team that has the skills, experience and industry contacts to succeed. It is very worthwhile finding a great non-exec director who is willing to help and has relevant sector experience and contacts – it will increase your chances of getting funding and success in building a fast-growing, profitable company. The process of finding a good non-exec can also help you test your business concept before you make that all important presentation to the investors. Any non-exec worth their salt will only get involved with your business for genuine reasons – it must be in their interests to spend their time with you, and lend their hard-won reputation to your enterprise.

6. Plan your exit strategy
One of the biggest complaints I get from angel investors is a lack of exits with their investments. Without this, they will conclude there is no chance of making a profitable return. Yet few entrepreneurs give the exit plan much thought beyond a comment about “listing on the stock market”. It is therefore very impressive to an investor when an entrepreneur can talk about the exit strategy, giving the why, who, and when it is likely to happen. What triggers the exit? What milestones have to be met? What terms are you proposing for the investors? What’s the timescale? Give this all due consideration before you meet investors. The exit terms may end up significantly modified by the time the investment has been made, but at the very least your investors will know that your business is geared for their profitable exit.

Get these fundamental points right and you’ll attract investor interest; you’ll also be much better placed to capitalise on the investment when it arrives.

Meet Paul Grant at the London Funding Conference, the must-attend event for businesses looking for growth capital. The London Funding Conference is being held at The British Library Conference Centre on March 9, 2011 and will include a wide variety of expert speakers and a keynote presentation from entrepreneur and investor Luke Johnson. For further information and booking details, visit: www.londonfundingconference.com

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