12 steps to finding the perfect investment partner
Updated 16th May 2016
If your business is thinking big, then chances are you'll be on the lookout for investment at some point in the future. Whether you need money for stock, equipment, people, marketing - or a bit of everything - courting investors can often be the only way to get it; and it's a sure fire way of propelling your business to the next level.
When you do start thinking about investment, it can be tempting to face the task with dollar signs in your eyes, looking for the biggest bundle of cash you can. But before you get carried away, remember that accepting investment means giving away a stake in your business. Which effectively means giving away a stake in your life! So it's crucial you get it right.
To help you get started, we've compiled 12 key steps to finding - and bagging - the perfect investment partner. So it won't be too long before you've got the investor of your dreams!
1. Be prepared
Taking on an investment project is just that – A PROJECT!
It can take up a lot of time and almost become a full time job for one person. So make sure you have the resources ready to ensure your precious business (and reason for investment) doesn't suffer.
2. Get clued up
Before you do anything, get to grips with the jargon involved. Understanding the different types of investors there are out there, along with the different types of funding available, will help you decide where to focus your efforts.
Terms you should know:
Angel investors: Affluent (high net worth) individuals who provide capital for early-stage start-ups, usually in exchange for ownership equity.
Networks and syndicates: A group of angels, normally led by one or two that have a better understanding of your industry or business idea.
Crowdfunding: Increasingly popular, crowdfunding websites enable you to reach thousands of smaller investors in one place.
Venture capital: VC firms typically invest larger amounts in emerging growth companies in return for equity. Often VCs will look at your existing traction that proves your business model works.
Seed funding: For early stage start-ups, this is a small amount of cash to get going, in exchange for equity. It could come from friends and family, angels or some VCs.
The 'Series' rounds: For those who've matured beyond the 'seed' stage, the series rounds – progressing from A to C - are for businesses that are ready for further growth.
3. Knowledge or just the cash?
Investment partners vary in how involved they want to be in your business. Some will stay at arm's length and let you get on with it, while others are more involved - mentoring, guiding and helping with contacts and industry experience.
Remember, most investors have had a successful business career of their own so many understandably want to have a voice in your business. If you hear the term 'smart money', that's what it means!
So have a good think about what you're looking for, along with what you're prepared to offer in return – would you give away a board seat for example? Setting boundaries early on will influence which investors you approach and how you respond when you meet them.
4. The lay of the land
If you've never done it before, seeking investment can be daunting. So spend plenty of time getting your bearings.
Talking with fellow founders that have already been through the process can be a great starting point. If they're not in competition with you, they should happily give you names, numbers, do's, don'ts - even introductions.
Also try to attend any relevant conferences, seminars and networking events, where you can interact with investors and companies who have secured investment. Just watch out for events with more people looking for cash than those who have it. If you're spending most of your time talking with other start-ups, it might be time to reassess your strategy!
5. Your wish list
Based on your research, now's the time to draw up a list of potential investors who match the kind of partner you're looking for.
Investors often like to build a complementary portfolio of businesses so try to find those where there's a synergy and think about how your venture fits alongside that. This can give you a useful 'in' when you start connecting.
While your wish list is important, don't get fixated on it. Investor appetites change all the time, depending on business and consumer trends. So be ready for your list to evolve as they do.
6. Your ammunition
Before you start making contact, have a refined pitch deck ready to go. This document is critical – everyone will ask for it. Refining it can take days or even weeks, and any investors you speak to will want it straight away.
You also need to be prepared for your deck to reach beyond those people you've actually spoken to. Investment is a network driven world - investors know other investors. So make sure it stands out and makes sense on its own.
7. You're ready to connect!
First, a word of warning – investors receive hundreds of 'world changing' business ideas every week. Perseverance is the name of the game!
A good first step is to drop them an email or give them a call to pre-qualify your interest. Keep it short, relevant and personal – they can smell a bulk email a mile away.
Many investors provide guidance on their website on how to approach them – read it! And if you can get an introduction from a mutual contact, all the better. Check LinkedIn to see if you know any of the same people.
When it comes to setting up a pitch, if you have the option, aim for a more casual introduction or meeting over a formal process. But you should always be ready for every eventuality, including more structured pitching processes.
8. Preparing to pitch
Once your pitch is secured, the right prep is essential. Here's a few pointers to bear in mind:
Tell your story – nobody wants to be bored to death with numbers, not even investors! Make it as engaging as possible through personal details and human interest.
Why are you different? Investors want to know that you've found a niche in the market. So make sure you answer this key question.
Show a business, not just an idea – investors want to see a functioning business, so show off details of your customers, cash flow and the team you have around you. This will give them confidence you know what you're doing.
Have a strategy – Most investors are looking around five years ahead and want to know that you've got your eyes on the horizon too. That includes a potential exit strategy, so be sure you've got a plan in mind.
Avoid a generic pitch deck – every investor is different, so fine tune your presentation based on your prior research.
Anticipate questions – No doubt you'll face a grilling at the end of your presentation, so try to prepare your answers in advance.
9. Pitch with confidence
If you've done your prep properly, you should be all set! But here's a few final tips for making a good impression on the day:
Don't ramble on – If you've been given a time limit, stick to it, leaving plenty of time for questions. Your presentation should be tailored for every pitch - don't try to fit a ten-minute presentation into a three-minute time slot!
Clarity - Be totally clear about what you need, what it's for and the anticipated return for investors.
Show your passion – You cannot be too enthusiastic in a pitch. So give it some welly!
Look sharp – Whatever you do, don't rock up in your 'just got out of bed' look. Remember, first impressions count and investing in some new threads could well pay dividends (quite literally!)
10. Was there a spark?!
So the pitch is out of the way and there's an offer on the table – job done! Well, not quite. Before you bite their hand off, just take a moment to evaluate whether the chemistry felt right from your side of the table.
For example, did they ask the right questions and show that they understand your vision? Do they meet any other criteria you have, such as industry experience, contacts or complementary skills?
If the answer is yes, then fantastic. If not, then consider whether you can live with the sacrifice - or if you'd rather hold out for a better offer.
11. Are they serious?!
It might seem crazy but do your investors actually have sufficient funds to finance deal? While it's not unusual for investors to finance some of their investment with bank finance, make sure it's not more than 50 per cent of the equity. Otherwise you could end up with a mountain of debt you didn't bargain for!
Also, do your best to avoid time wasters. Some investors have lots of meetings, but never commit. Don't be sucked in!
12. Don't give up!
Last but not least - persistence! If your 'perfect' investor says no, don't be disheartened. They are plenty more fish in the sea, so be resilient and try to learn as much as possible from each experience.
Small business workshops and training providers
While there’s a lot to be said for learning on the job, it certainly helps to have expert advice to fall back on, when starting a small business.
Startup marketing - five essential strategies for growth
There are certain strategies that are particularly well-suited to startups - make sure you know what they are.
How to start a business with no money
While the cost of starting a business can be high, it is possible to get quite a long way towards your goal with very little expenditure.