How to secure external investment for your firm
The ability to articulate your business plan, a strong management team, and a strategy to address any weaknesses are crucial when bringing on investors, writes Arlene Adams
Bringing on board an external, professional investor could be the most important business decision your firm makes.
Get it right and it could help springboard your business to huge success; get it wrong and it could end up being a decision you regret.
There are a few crucially important points to consider when bringing on an investor.
Know why you are doing it
Having spent the last 12 months engaged in the process of bringing on board external investment, I can honestly say that it takes more time and energy than you can imagine. This will only distract you from your most important task - running a successful business - so you have to be clear from the outset why you are doing this.
An external, professional investor is only one way to finance and grow a business. Typically, this route best serves those businesses that have 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.
The traditional legal partnership gives control to the partners, and bringing external investment into a firm could change all that. Any partnership needs to be clear on what that means at a business and a personal level, as once the
deal is done there is no going back. These are all things that impact not just the business
but also your role in it and your enjoyment of what you do. So, be careful what you ask for and certain of what it means.
If you decide that external investment is the way ahead, then you need to be able to articulate this. Investors get hundreds, sometimes 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, then you won't get past the front door. Being able to articulate this in a clear and simple financial model is essential.
If you are after a serious amount of money, consider approaching a professional adviser to help you. It is always best to run a selection process and to engage with advisers who come with a recommendation.
The most critical thing is to ensure they can point to examples where they have successfully helped a business
of a similar size and in a similar market to raise investment.
This market is incredibly small and everyone knows everyone, so the adviser's contacts and reputation will speak volumes to prospective investors. They will be the reason you get - or don't get - initial meetings, so select with care.
People buy people
Investors are simply a group of people, with a great deal of experience in investing in companies. Like us all, people buy from people. Investors will all tell you that what 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. For this reason, you have to be honest with yourself about the strength of the 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 top team will make the grade. Investors reference-check every aspect of the management team, so it's not what you think that's important, only what you can evidence.
Start with 'why not?'
While it's natural for you to talk about all the positives of the business, investors will spend more time on what could go wrong. This may seem like a negative approach, but they are in the business of managing risk and therefore they will take no shortcuts.
Before you start any investment process, ask yourself: ‘Why wouldn’t I invest in my business?’ This needs honesty, as it’s probably the most important area in which to invest your time: you will have a far greater chance of success if you are prepared for these difficult questions and have worked out responses. 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.
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, which is why most companies that want investment don’t get it. And then there is luck, and we can all do with some of that... just don’t bet your business on it. SJ
Arlene Adams is the founder and CEO of Peppermint Technology