Britain may not have the venture capital culture of Silicon Valley, but there are still plenty of investors out there willing to take a bet on your business if they think you're a good prospect. So what are they looking for and how can you get them to part with their cash?
Investors often talk about the importance of the management team or the entrepreneur behind the business. Demonstrating that you and our top team have got the right attitude and competence is likely to be the difference between securing funding and not.
'We’re pretty obsessed with the management team and that always becomes the first point in deciding whether to take people on,' says George Whitehead, venture partner manager at VC firm Octopus Investments, which has backed the likes of Zoopla, Lovefilm and Graze.
That's a point echoed by John Waddell, chief executive of Edinburgh-based angel group Archangels, who says, 'It’s not really so much what the business plan looks like, it’s really whether the management ream has the qualities – the determination, the good attitude, and the potential for hard work.'
Whitehead says that good entrepreneurs tend to be a magnet for other talented people, so demonstrating you can build a solid team will be attractive for investors. 'Before people start convincing investors to come into the business it’s about convincing other people to invest their time,' he says.
Know your market
It should go without saying but you need a thorough understanding of your business model, and of the competition you're going up against.
'One of the most important differentiators in a business plan is a proper understanding of the routes to market – how are you going to get this product out there?' says Waddell.
As well as how your own model will work, you need to show you will be resilient in the face of competition. 'They need to demonstrate the size of the market,' says Whitehead. 'And they need to explain why they’re going to be very different to the other companies in that space.'
He adds that you need to be upfront about the competitive challenges the business faces or you could risk looking naïve. 'People underestimate how much we like a decent straightforward conversation about the business,' he says. 'People often underplay the competition and it just rings warning bells'
Get the pitch right
Don't drown your potential investor in too much information – begin with a clear pitch that identifies the problem you're trying to solve, and how you're going to do it. Obviously make sure that you're ready to provide the more heavy stuff if you get follow-up questions though.
'Everyone used to send out executive summaries and big thick business plans,' says Whitehead. 'Nowadays its much better to send a small powerpoint via pitchdeck.'
A personal touch helps too – Waddell says it's better to approach investors direct rather than through your accountant or a broker. 'People don’t pick up the phone enough,' adds Jon Coker, a partner in VC firm MMC ventures, which has backed Pact, Gousto and Reevoo. 'If a cold email is not followed up on then its unlikely to get you far with a VC unless you really hit the information on the head in the email.'
Remember investors are people too
Both angels and VCs are unlikely to simply hand over their cash and let you get on with things.
'People often don’t approach it in the same way as they would building a relationship with a potential business partner,' says Coker. 'It’s not just a case of sending some information across and getting some money from a VC, it’s about building a relationship over time.'
Ultimate it's just a question of convincing an investor that you're a safe pair of hands who they can trust to take good care of their money.