Understanding your Investors.
Funding your growth isn’t just about money – it’s about strategy, trust and picking the right partners.
Sourcing the right investors for your business, start-up, or acquisition can be a daunting prospect. Are you looking for a group that will support your growth, be an engaged partner, and offer both strategic advice and tactical support? Is debt funding a better option for you and if so, what are the terms of the loan and does your company have the cash flow to make the payments? Or do you combine the two types of funding (debt / equity)!
How do you get access to the right people and who can you trust to offer advice and support during the funding process? Be clear on the reasons for needing the money and crystal clear on what your investor is looking for as a return on investment. If you engage an advisor, what are they going to cost you and will you be culpable for any abort fees?
If you think any of this is easy you need a reset! It is tough. Develop a thick skin!
Getting Investor Ready – What do you need to prepare?
A detailed business plan. Remember that equity partners are primarily focused on revenue growth and an exit in three to five years. Debt providers need to be confident in your company’s cash flow and the ability to fund the interest payments. Are you looking for funding to develop new technology, add resources for expansion, or to acquire a company or companies?
Your business plan needs to align with the objectives of the investors.
- Believe in your product and service! Investors want to see enthusiasm and a strong business case for diversification, acquisition or scale-up. If you can’t sell the idea to investors, how will you persuade your clients and employees, to come along for the ride?
- Be clear with your mission statement, it needs to reflect the culture you want for your company. Culture is important to attract the right employees and retain them – your investors will know this.
- Have a sharp, compelling ‘elevator speech’ that resonates with both your clients and your potential investors.
- What is your total-addressable-market (TAM) and have proof that you understand it. What proportion of that market can you realistically capture?
- What are the price points and what market share do you need to remain profitable and grow the business? How realistic is it to increase market share from where you are now and how will you do it?
- What resources do you need to deliver organic growth?
- What does your operating platform look like? Can you scale without breaking your Ops or Team?
- Can the current OPEX absorb another 5% / 10% / 15% of growth. If not, what is the cost of additional resources / equipment / space required to deliver on a three-to-five-year growth plan.
- How experienced is your senior management team? Can they deliver on the plan and if not, what hires will you make?
- What does your competitive landscape look like? Combine this with a SWOT analysis and, if expanding into different geographies, a PEST analysis.
- If you are acquiring or merging a company, what are the potential savings to be made from integrating the businesses? Will you integrate the back-office? If not, why not? if so why and what savings will this generate?
- For any planned acquisition / merger, create a Strategic Operating Plan for the combined business, highlighting the new organisational structure and with a 100-day integration plan to share with potential investors.
What do you need to keep in mind?
Be aware that you will put a lot of work into answering a list of questions pertaining to your business, the efficacy of your strategy, the marketplace and competition, the numbers and your own professional capabilities.
During this exercise, you will get feedback from potential investors. It is important to always remember that until the management committee / investment committee sign off on the funding there is no deal. This may be a lot of work for nothing!
If you have Options, Choose Wisely.
There are many considerations that I have not covered here and the options for investment can range from Private Equity Firms, Banks, Venture Capital firms, Family Offices, Angel Investors and so on. However, the importance of choosing your investors wisely cannot be overstated. Do the research, look at their portfolio of companies / investments and the sectors they invest in. Spend time talking to the principals.
You will be asked the question “Why should I invest in you and your business?” Equally important is to ask yourself this question “Can I collaborate with this firm; do I trust them, and will they deliver on their commitment? ”
Remember: Trust, Fit and Due Diligence!
Let’s talk about how to find investors that bring more than just a chequebook.
