If somebody offered you a huge sum of money for your business tomorrow, would you accept it? Tempting, isn’t it, especially when the economy is as challenging as it is. But wanting that investment and being ready for it in the eyes of your potential backers are two entirely different things. Imagine getting in front of an investor and not being able to seize the opportunity with both hands. You often don’t get a second chance, so you have to be ‘investment ready’.
To access any type of finance requires a sound business proposition, a quality business plan and often a presentation to investors focused on the investment opportunity. And it’s like any sales pitch: you need to know your customer’s needs. In this case, what’s driving your investor.
Our model for ‘investability’ identifies four key areas on which a business wishing to raise finance needs to focus:
Put your backers in the picture
First, a company should make explicit where it would like to be in three or five years, against a number of metrics. Defining this vision and strategy should give the management team a common view of where you’re heading.
Who’s your management team?
Most important for finance providers is a strong management team – those with a successful and relevant track record will generally raise finance more easily than those without.
Plan your route to market
The business plan should define a target market of customers and the channels you’ll use to reach them, as well as how it will be achieved and the resources needed.
What do you want, when, and what for?
A start-up or early-stage company needs a good understanding of finance options, investor requirements, and the fundraising process itself. Knowing how to make and defend a pitch based on the investment opportunity rather than on the technicalities of the product or process is essential.
Finance comes in three basic forms: grants, debt and equity. I’ll concentrate on equity, as this is often a main source of finance for start-up or early-stage growth companies, particularly where risk is involved. Typical sources are the founders and owners, friends and family, business angels and venture capitalists.
Friends and family typically offer up to £20K; business angels £20K to £1m, (often in syndicates for the larger amounts) and venture capitalists from £100K to the sums seen at our annual Connect Midlands’ Investment Conference (CMIC) which can reach up to £5m and well beyond.
With all finance, the funding providers are looking for a credible management team with the drive to make it happen; a good differentiated market opportunity with defensible USPs; a scaleable business model; clear routes to market; a good understanding of finance required and an indication of when breakeven will occur. Remember investors are typically looking to exit in three to five years.
How to become investment ready
As a not-for-profit organisation, we act as an honest broker to provide high-growth companies with the tools they need to develop and raise investment through our Understanding Finance for Business programme.
Companies can access different levels of support from Understanding Finance for Business depending on their needs – entrepreneurs at an early stage seeking their first round of company funding, or more experienced entrepreneurs or businesses after mentoring from industry experts to prepare them to make investment finance deals.
John Griffiths is director of Connect Midlands, a public-private partnership that helps companies raise investment