How to Attract Small Business Investment: 10 Top Tips
Seeking an equity investor is both-time consuming and challenging. Here's how to keep the process as easy as possible to give you the best chance of success
If you’re running a small but growing company, seeking an equity investor to fund your business can seem like a time consuming exercise and a distraction from your daily management functions.
However, if you want to accelerate your business growth, it’s often the only option you’re your burgeoning company. To maximise your chances of success, follow these top 10 tips, designed to help keep raising finance as smooth a process as possible.
Have a well written business plan
Investors are looking for a transparent, fundable business that can provide them with the returns they require. Check that your business plan is clear, to the point, and that it concisely outlines the product/service and its route to market. Less is more and too much technical detail is a turn-off.
Have the right people
Investors want to back a committed management team with the right skillset and personalities to drive the business forward. The whole team does not have to be in place at the outset as long as they are identified and committed to the project. You must be willing to include investors in the management team as well.
Know the market
Any investor will want to be certain that you understand your market and the position that your product/service will hold. An in-depth understanding of market demographics, trends, and growth potential will build credibility. Well thought out projections are essential. Consider what your competitors will do in response to your product/service and how long it will take them to catch up. What is your unique selling point?
Consider the end game
All investors want to know how they are going to get their investment returned. Make sure the business plan contains a clear and realistic exit strategy, including timing and the expected returns for the investor.
Do your homework on which investors you want to approach; choose those with a track record in your sector and who actually have money to invest. Be ready to supply more information to them quickly and when requested. Once you have met with investors, stay in touch – keep sending them positive news while they go through their decision making process. Stay focused on the business too – it’s important that you continue to meet your own projections as you go through the fundraising process.
Aim for experienced investors
They offer so much more than just cash. They’ll have an extensive network of contacts, expertise and support that they can make available to your business.
What level of control do you need to retain to be able to operate your business on a day-to-day basis? Remember that your investor will want to have a say on major decisions such as moving premises, hiring senior staff, and buying expensive kit.
Show investors that you understand the regulatory system for your industry and the opportunities and challenges this presents.
Taking on other people’s money requires proper corporate governance systems to be in place. Before you approach investors, make sure you can demonstrate that your business is well run and complies with all legal and accounting requirements. If you’re not used to holding regular board meetings, haven’t implemented proper financial controls or your risk management policy folder is empty, then a bit of leg work will be needed but will pay dividends.
Raising equity capital takes longer than you think. Start fund raising nine-12 months before you need the cash to be in place. Failure to anticipate funding requirements properly will reflect badly on the management team and will hamper your fundraising efforts. Getting the timing wrong can result in a weak bargaining position, potentially having to give up a greater percentage of equity, and – in the worst case – closure of the business if you run out of cash altogether.
Will McIntosh is a partner in Brodies LLP’s corporate & commercial team, you can contact him at firstname.lastname@example.org