You may have heard that people are very serious when it comes to their money. It’s true! If you’re looking to attract investment, you’re going to have to answer a few questions. The good news is that you’ve got your house in order and you’re ready to demonstrate your value. Just to make sure, here’s a few things to keep in mind.
Reasons for Seeking Investment
Do you really want to do this? An investment can bring with it many advantages: capital needed to expand, strategic proficiency, fresh blood, and new ideas. Just make sure you’re in position to leverage these things because, in return, you’ll probably be giving up equity and/or some level of control.
Different investors (and types of investors) have different priorities. You want an arrangement that works for everybody (including you) so make sure you’re barking up the right tree, at the right time.
Preparing a Pitch for Investors
When presenting your case to investors, it helps to know what you’re talking about. If you attract an interested party, the process may begin to speed up quickly and it’s best not to be caught flat footed.
There WILL be questions and you’ll be expected to answer them quickly with accurate information and thoughtful analysis. By doing so, you’ll not only be providing would-be investors with the information they seek, you’ll also be demonstrating your own professionalism, intellect, and expertise. This is key, particularly if your individual capabilities are considered part of your company’s value proposition.
It goes without saying that a solid business plan should demonstrate an honest and thorough understanding of your company’s situation. Likewise, well-catalogued intellectual property, copyrights, and customer lists will be looked upon favourably.
This is the type of information that a good business manager will want at their disposal at any rate so, ideally, this is done on an ongoing basis, not as part of a scramble to attract investors.
Finally, when presenting your case, it’s important to keep your audience in mind. Those with expertise in your industry will likely respond to more specific information, while others may prefer big picture analysis. Either way, they’ll be looking for you to present a path to success!
As Albert Einstein said “If you can’t explain it simply, you don’t understand it well enough.”
Preparing Solid Financial Numbers
A big part of knowing your business is the ability to demonstrate a clear financial picture.
“A serious investor will track every revenue dollar and then seriously challenge every expense it’ll take to generate that revenue dollar,” writes William DeTemple for Antirion.1
Have you conducted a realistic and well supported valuation? They likely have so if you haven’t, you’re essentially walking into the negotiation unarmed.
You’ll want to present forward forecasts and ROI projections. Well organized financial records will not only bolster your claims, but will also demonstrate attention to detail.
“Sloppy numbers sap value like a poorly tuned engine saps horsepower,” writes Craig Allsopp for Divestopedia. “You may find investors who will overlook holes in your financial reporting, but you won’t get top dollar.”2
Presenting Your Value Proposition to Potential Investors
Be prepared to explain to an investor what they’d really be getting for their money. What is your unique selling proposition? Were you first to market? In possession of exclusive patents? Are there barriers to entry or can your offerings be easily replicated? Are you prone to disruption? Do you have ongoing supply or demand side contracts? Can you present a realistic and defensible SWOT analysis?
Bolstering your case with market research will add value. Do you have potential for growth or new product lines? Is your operation scalable? What are your potential acquisition opportunities, both vertical and horizontal?
An honest appraisal of your business and your competition should be in order.
The Importance of a Great Team
As we mentioned earlier, part of your value proposition is you. Ideally, you’re a capable and passionate leader who is surrounded by a deep roster of top notch individuals that can carry on in your absence.
Some investors, of course, are looking to disrupt business as usual so you’ll want to be flexible as well. It really all boils down to finding an investor who’s a good fit for your objectives while ensuring that you’re a good fit for theirs.
Presenting an Exit Strategy
Investors like profits, both in the long and short term. Your ability to articulate a potential exit strategy will be attractive. This, of course, is tied to a host of financial and market factors so careful analysis from a professional team is advised.
When it comes to attracting investors, there is no substitute for a well positioned and fundamentally strong business. Assuming that this is in place, your preparation and focus will help maximize your appeal. In this regard, self-awareness, careful analysis, and good articulation will go a long way.