How to be ready for investors
As corporate advisors, we meet with many companies seeking investment capital to help grow their business. But attracting capital from investors largely depends on whether they are “investor ready” or not.
We were recently approached by a company in the construction industry to raise A$5 million capital for them. They were well established and profitable and had the opportunity to expand abroad and required the funds to finance their expansion.
After a brief period of due diligence, it became apparent to us that they were far from “investor ready.” We prepared the following checklist for them and are now working with them to implement it before approaching any investors.
The checklist covers the main problems that an experienced investor will look for (and expect) in an investee company:
o Experienced and stable management team, not only knowledgeable about the industry and the product, but also able to successfully implement the business plan and manage the operations of the company. Investors invest in management that is committed to the business for the long term
o Solid understanding of the industry in which the business is located,
o Realistic investor-ready business plan (presenting a detailed and realistic business strategy of current and future plans).
o Realistic and achievable financial forecasts and high return on investment (ROI) potential.
o Excellent business growth potential with fast growing markets.
o Willingness to include, if necessary, the Investor in the management of the business
o A comprehensive understanding of the customer (target market), including market size, demographics, trends, pricing strategies, accessibility, growth potential, demand for products and services, and commitment to business development.
o A clear idea of the valuation of the business, the equity available to the investor and a strategy for the exit of the investor.
o Efficient internal accounting and financial systems and signed accounting reports are essential.
o An easy-to-follow and manageable business/growth product strategy combined with financial management ability to plan for the period.
o Ability to explain how investment capital will be used.
o Point of difference: in product, distribution, profit, returns, administration, location, contacts, technology, barriers to entry, patents or other unique competitive advantages.
o An understanding that attracting the right investor can take time, typically up to six months.
Approaching unprepared investors is probably the most common reason entrepreneurs fail to attract capital. Some investors see 10 or 20 deals a week. If your proposal doesn’t include all of the above, chances are you won’t get past first base and they’re immediately on the next deal.
However, once you learn how to make your business “investor ready” and manage to attract an investor the first time, seeking subsequent funding rounds or funding a new venture becomes much easier. So if you want to become a successful entrepreneur, it’s worth spending the time and effort learning how to make your business “investor ready.”