Financiers and investors have a very different risk appetite, they’re not playing games.
Just how good is your idea, project or opportunity?
To attract debt or equity investment capital, successful investment strategies and actions must be put in place. Remember that most investors also invest a lot of time investing and you will be one on many hundreds that they have looked at, or are currently looking at. Venture Capitalists on average only invest in one business out of every hundred that they look into.
There are millions of good ideas, however, an idea is worth very little until someone does something with it. Investors only want to put their money into real ideas in real businesses, where the basics are in place along with some sort of a track record. Not just into ideas.
All investors have similar ways of looking at a business or, opportunity and they firmly believe in the value of an Investor Ready business. This is despite the fact that most investing in a smaller business are of a speculative nature because the market is changing so fast. Even though many financiers and investors do not know how to do something well, they will recognise it when they see it
Get your management team lined up before you approach any investors. Unless you have approached a number of talented people who are committed to joining your company upon funding, you probably aren’t ready to seek outside investors.
Without a strong management team waiting in the wings, most investors will not risk their money. A lot of investing is still about people, so a lot will depend on whether you can get the right people on board.
Some key points that investors will look for when seeking to invest in a business
- There is a compelling business vision linked to clear strategies.
- A thorough and clear understanding of the target market.
- The businesses sustainable competitive advantage.
- There is excellent growth potential.
- An experienced and stable management team.
- There are a professional approach and commitment to business development.
- Sound understanding of the industry the business is in.
- The quality of your content and content marketing activities.
- There is a willingness to accept an equity partner.
- They are clear about what the business needs.
- The business owners know what skills are needed to implement the plan
- Corporate governance and stakeholder relationships are taken seriously.
- Business and private affairs are clearly separated from the business.
- They have a sound knowledge of the market and growth potential.
- High probability of projected high returns is possible for the investor.
- An exit strategy for the business owner as well as the investor.
- The business is Investor Ready.
- A willingness to include and involve the investor in the business as a partner, and also with the view to building your management team with the investor.
Once a business is capable of presenting the above, then and only then can they proceed with any certainty of success, with whoever they are approaching.
As an investor in your own business, these are critical questions you should be asking yourself.
Start with your own resources
Try raising your initial capital, or seed capital, from your own resources or go to your “family and friends”. Develop your concept to the point where it will be attractive to experienced financiers and investors.
When you have your team ready you are in a position to present a strong case to investors. You can now start making your presentations. Investors will want to see you have already invested in your business, you have some ‘skin in the game’.
Many businesses have been started on the basis of the owner’s credit card being used, to get things moving and show they are serious.
I have been asked to invest in many businesses, but wouldn’t because the owners had no, or little, money invested in the business and was not prepared to invest anymore. They were too risk adverse, but happy for me to take all the risk.
The business plan
While you might spend countless hours preparing your business plan, financiers and investors will have little time to spend on it. They will read your executive summary and maybe look for one or two key parts of your business plan.
The truth is that very few business plans are actually read by the investor, but they do read the Executive Summary. Think about how you would like to sit down and read one hundred business.
To venture financiers, investors, capitalists, banks and business angels, there is nothing heavenly about an unprepared business person or entrepreneur.
There are a lot of investments made without full-blown business plans. However, with the ever-increasing competitive business environment, a financial application, which is accompanied by the business plan is an important part of the financing decision-making process?
At the very least you should provide an Executive Summary and financial summary documents, management and team résumés, product brochures and perhaps a mock-up of your proposed product or service.
Your executive summary must be interesting and able to capture the reader’s imagination before they will read any further. The Executive Summary showcases your ideas and outlines the key points of your business model.
If you make this material compelling enough, you may get some level of initial interest before you have to put a lot of time and effort into the business plan. You could find that financiers themselves are willing to assist with the content of a business plan if they have a high enough level of interest in what you are proposing.
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All too often businesses fail to attract the capital that they need because they do not have a thorough understanding of the investor’s requirements. In other words, the business was not attractive enough to the financiers or investors.
It is the people who make or break a business finance proposal. Financiers and investors will make their decisions based on how they feel about your attitude to business and to money.
What financiers and investors do know is, if you have produced what looks like a credible business plan, you do know what your business is about and how to drive it.
Look to engaging a financial advisor to bridge the gaps between you and the money you want and need.