Driving growth: how to get your early-stage business investment ready
Driving growth
What do investors look for?
What to consider before seeking external investment
What to share when pitching
Once it has been decided that external capital is needed to help drive the business forward, it’s important to present the business as a strong investment opportunity that will ultimately deliver returns for an investment partner. To do this, it’s good to know what potential investors are looking for, which includes:
Many entrepreneurs have visions of Dragon’s Den when the conversation turns to pitching for investment, but there are a number of ground rules you should follow to ensure you put your best foot forward:
While many businesses will take an outward-looking approach to securing investment, asking important questions about what a potential investment partner will want to see from them is also important to determine personal boundaries too. A typical investment horizon could last anywhere from one to seven years. This means it’s vital that a strong working relationship, trust and chemistry is established from the outset. To lay the foundations for that, there are several questions to ask – this includes:
1. Convert your vision into an execution plan
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1. Business proposition
Translate your vision and strategy into a tangible business plan. Ensure this is forward-looking and spans the next two to three years, support it with forecasts that demonstrate what funding is needed and where. This will also help you to articulate the amount of funding you’re asking for.
Every early-stage business that is seeking external capital must have a clearly defined proposition. This is important across sectors, as being able to articulate the need for your product or service can help bring a business to life for potential investors. It’s important to remember that the majority of investors will not be a specialist in your sector, so being able to communicate the problems that your product or service helps to solve is key.
Billion pound funding gap estimated across the UK’s sectors 15 The amount securing investment for UK businesses multiplies by year-on-year Billion dollars of investment secured by UK businesses from northern Eurpoe in the first half of 2021 2.7
Will you need to give up control of your business?
2. Quantify where the investment will be spent
What benefits you will gain from an investment partnership – for example, is it just an injection of capital, or is there an investor that will also provide hands-on support, operational inputs and guidance to support the growth of the company?
Investors will want to know where their money is going. For example, is it to support expansion into new markets, to invest in research and development, will it fund losses, is it a requirement for working capital? There are many things investment can be used for but, without a business model that helps you to articulate where that capital will go, it may be hard to get an investment partner on board.
2. Management team
Many investors will say the strength of the management team is the most important factor when making an investment decision, and while it is crucial, the proposition needs to be in place first. However, if the business idea is strong enough, then investors will certainly look to the management team next. They will be looking for a team of individuals that are passionate, driven and resilient. Investors will support individuals as much as they support the businesses they run, so they will want confidence that the team driving the business forward are all working towards the same goal, and remain aligned through the varying challenges they may come across.
What will it cost you in terms of equity dilution?
What happens if it does not go according to plan?
3. Route to market
It’s also important to do your own due diligence. Take references, speak to the entrepreneurs and founders of other businesses your potential investment partner has backed, and ask them to share their track record in supporting companies when a business doesn’t hit budget. The growth trajectory of any early-stage business is often up and down, and you may want confidence that an investor will provide follow-on funding when things don’t quite go to plan. Like any good partnership, there needs to be chemistry, so don’t feel pressured to partner with the first investor that makes you an offer.
For many businesses there isn’t always a straightforward route to market. If you will need the support of a distribution partner to ensure your product or service can reach the consumer, ensure they’re on board first. And if not, ensure you have a clear roadmap in your plan.
4. Multi-disciplinary team
3. Protected intellectual property
While it’s vital to put your best team forward, we would recommend limiting the pitch team to no more than three people to keep the pitch as focused as possible. Alongside the founders of the business, you’ll want to make sure you have someone on hand who knows the numbers inside out. This is even more crucial for early-stage companies as investors are more trusting of individuals who they are confident will manage their money carefully.
The third most important factor is to ensure that the company’s intellectual property (IP) is protected. Any innovative product or service is open to imitators unless it is protected, and many larger players within the market have bigger resources and buying power to develop products at a faster pace. This puts start-ups without adequate IP protection at risk, any potential investor will want reassurance that if they back a business, the risk of a competitor encroaching on its patch is limited.
Notes
* 1 Dealroom and Sifted, 2021. Startup cities in the Entrepreneurial Age. European Startups. [online] Available at: <https://dealroom.co/uploaded/2021/07/ Dealroom-Sifted-Startup-cities-in-the-entrepreneurial-age.pdf?x23070> [Accessed 26 August 2021]. * 2 ScaleUp Institute, Innovate Finance and Deloitte, 2020. The Future of Growth Capital. August 2020. [online] Available at: <https://secureservercdn. net/160.153.138.71/g8r.bcb.myftpupload.com/wp-content/uploads/2020/08/The-Future-of-Growth-Capital-August-2020-1-1.pdf> [Accessed 22 June 2021].
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