Attracting Investment: How leading entrepreneurs prepare themselves
Over the years, I’ve been privileged to work with a huge cross-section of businesses and entrepreneurs, both here at SA Law and through my role as a non-executive director of enterprise agency Wenta. Of all the activities that businesses undertake, raising finance can evoke the greatest amount of anxiety, yet logical preparation often provides all the reinforcement you need to present yourself confidently to investors. Here are a few tips on how the experts approach it:
Be clear about what you need, and why you need it
Getting this right is the lion’s share of the work, and the aim is to fully understand your plans, and then distil them to their essence. For example, are you growing the business with new equipment, undertaking a refurbishment, expanding the team, or do you simply need more working capital? Do you need to cover a one-off cost, or is it for a longer-term initiative? One way to approach this is to define where you are now, where you want to be, and what you need to get there.
Is it a good idea?
Time for an honest opinion, because we can easily get caught up with the shiny bits of our plans. Get some perspective from people inside and outside your business, and don’t limit yourself to those who always agree with you. Testing your ideas on the harshest critic could expose a few pearls of wisdom that you missed. You should also chat with your accountant, banker and lawyer to get their professional opinion. They can almost always help to refine and reinforce your plans before you approach investors.
Understand your investment options
There are a wide range of investment formats nowadays, such as traditional loans, angel investment, crowdfunding, peer-to-peer lending and private investment through a new partner or shareholder. Make sure you understand the pros, cons and risks of each, and bear in mind that business lawyers and consultants can steer you towards the right investment model for your situation. You also benefit from running a range of ‘what if?’ scenarios based on parameters such as changing economic conditions.
Get your documents in order
This is when you pat yourself on the back for being so diligent with all that filing over the years… or not! If you successfully attract an investor’s interest, you will need the paperwork to back up your story. In most cases, they will want to see financial statements, a 12-month forecast and a well thought-out and realistic business plan.
Take a good look at your business
Naturally, this is the time to examine all aspects of your business, but particularly your people and how you employ them. Think about how crucial your team is to your objective, and how aligned they are with the strategy. Do you have the right management team to make your business plans work? What are the risks if someone crucial decides to leave? Employment can be a legal minefield, so professional advice from a specialist employment lawyer will help.
Think like an investor
As you start to write your pitch, try to see the situation from the investor’s perspective. Most investors aren’t gamblers – they want to see odds in their favour. Think about how can you give them the confidence they need to take a chance on you. The ideal result of a pitch is that the investor doesn’t need to think hard about their decision – it’s a ‘no-brainer’ as the benefits are too good to turn down.
Sell yourself first, then the business
Believe it or not, but at the outset you are far more important to the pitching process than your business plan. Think of it as the first gate you need to unlock – whether you come across as someone competent enough to drive a business forward. They want to see your confidence in yourself and your idea, with the experience to make the most of it, and the emotional intelligence and stamina to see it through to successful fruition. This is where the value of coaching cannot be underestimated. A professional coach will help you capitalise on your strengths, shore up any weaknesses, and highlight any blind spots you might be missing. If you have one opportunity to sell an idea, make sure you’re the best person for the job.
Get ‘pitch perfect’
Time to work on that pitch, which needs to be tailored to the delivery method, whether you’re doing the rounds at networking events, presenting in front of a panel, or filling out an online form.
Successful salespeople know that pitching is all about the ability to sell an idea, and it can help to think about this like a news story. Articles tend to summarise the entire concept in the opening sentence, then summarise it again in more detail in the first paragraph, before going into further detail in the rest of the article. Try to build a pitch in the same way, so you have a perfect summary sentence or two that defines what you need and why you need it (the elevator pitch). If you attract an investor’s interest, you can elaborate in slightly more detail. From there, the investor will be asking questions that you can answer in even more detail.
In justifying your plan, focus on what makes your business great, and why it’s better than the competition. Highlight the USPs of your team and customers, and anything else that contributes to your success. Also, think about how you pitch the narrative of the plan. Explain your current business position, the thinking behind your idea, and what you expect to happen once funding has been injected. If this is complicated, make sure you can articulate it in a simple and user-friendly way.
And if you are pitching informally in networking sessions, here is an excellent tip – get the investor to speak first. By listening to what they say, you can formulate your response to meet their needs.
Make sure you understand the terms of the deal
Congratulations – you have secured an investment offer. Take a deep breath and start working hard to understand all the implications. This is an obvious point, but sometimes the important details can be missed in all the excitement. Get a lawyer to check contracts before you sign them, which will save you money in the long run if things don’t go to plan.