How to position your business to gain investment
Author: Alex Conroy is the Head of Corporate Finance at Pomanda
Pomanda improves the way business owners sell equity or raise finance and help them connect with investors, lenders and advisors. They are experts in getting companies the information they need to value their business and help investors and advisors get access to more deals.
It’s a challenge for many new businesses to grow beyond the start-up stage because they don’t fully prepare for success. By focusing on near term goals, it is natural that thinking about the future and taking the necessary steps towards long-term success often go unaddressed.
Bringing on investors, or partners, can be a solid foundation for businesses looking to grow. However, for most small businesses the idea of relinquishing equity, putting together a pitch deck and connecting with Angel investors and VC firms is a completely unfamiliar concept.
Pomanda was founded because we recognised a lack of information and resources available to small business owners when it came to accessing investment. Small businesses are often reliant on personal networks and previous experience in raising funding, and so the process appears skewed and might prevent fantastic business ideas from ever fully developing.
The most important thing to consider is, what do investors look for when they evaluate a business? It is our experience that investors tend to focus on three things when making their initial assessment of an opportunity: the idea, the team and the potential return on the investment.
So what can businesses do to best position themselves for investors and secure the funds and resources to elevate their business to the next level?
Have a business plan that clearly sets out your growth plan
Spend time creating a plan for your business moving forward, set out the current operations of your business, focusing on the strengths, weaknesses, opportunities and threats. Address the negative points and how you plan to combat them. Don’t be afraid to project a lofty future for your business, just remember to back it up and justify it.
If you can, focus on reliability of income
Whilst a big single contract or project win can be the lifeblood of a small business, they can also lead to hesitation from investors. At the end of the day, they are looking to make a return on their investment and if your business is reliant on only one customer this can create a single point of failure for the business. In order to mitigate this risk, investors often favour businesses with multiple smaller contracts. Reliable recurring revenue is key as it makes predicting financial outcomes easier, increasing the likelihood of their required return. Should your business be reliant on one customer, it’s important to explain and justify the security and value of that relationship.
Do your due diligence on what kind of partner you want to be involved with
It’s important to understand what kind of investor you want to take on, is it purely someone to inject cash into your business who will take a back seat as a passive investor? Or are you looking for someone to add value? Take Dragon’s Den for example, one of the benefits of partnering with a dragon is the doors they open and connections they have across industries. A hands-on investor can bring much more than money to your business, but it comes at a cost of a reduced level of autonomy.
Build your team wisely
Nothing sets off alarm bells for an investor more than a dysfunctional team. As a small business with limited resources, it often means there are blurred lines between roles, team members are expected to pitch in and multi task. Cohesion is imperative. When hiring new team members, make sure they add complimentary pieces to the existing team. It is important to make sure that you and the team can work with the new hire as a person rather than just a list of credentials on a CV. In a small company the whole must be greater than the sum of its parts.
Whilst these tips focus on positioning your business for investment, it is still key to take advantage of opportunities to expand your network. Leveraging existing relationships or attending events is one of the best ways to gain access to investors. There are often free events you can attend in your local area to listen to investors speak and meet fellow entrepreneurs. These events are also a great way to make useful business contacts who may be able to open doors for you.