Getting investor ready

Columnists

One of the areas I’m often asked for help is “how do I get my business ‘investor ready’”? Many start-up entrepreneurs are keen to get in shape to face this significant step with confidence (and also secure a strong valuation).

Others ask; “Why do I even need investment? I can build my business on my own.”

That comment can be true but it absolutely depends on your growth ambition. In the FMCG world (where there’s been a recent explosion in start-up brands), you really need to invest ahead of the curve to build your brand awareness and attract consumers to your product. If your product is good enough, they’ll buy it again.

Almost always, you need external investment because your brand building (and possibly stock building too) will result in a loss-making venture over the initial years. So long as you can demonstrate a progression to break-even within a sensible timeframe, based on reasonable assumptions (NOT like Adam Neumann at WeWork!), then you should be able to find investors who will back you. The key is to build alignment between you and your investors. To do that you need a strong Business Plan and a shared Exit Plan.

But it’s not so much about a smart document – rather it’s more about the work, research and judgement you have used to generate the Plan. This is what investors are really interested in. The fact that you have considered all angles, figured out what the challenges and setbacks are likely to be and come up with a well-considered Plan to implement your business vision, that is where the real value lies.

Once you’ve raised the cash you’ll want to spend it wisely and not throw it at numerous initiatives (many won’t work and those that do will often be confused with those that don’t). That means you don’t just need to attract money, but you need “smart money”. You are going to need help and advice to enable you to spend the investment appropriately. This will also be something your investors will want to see evidence of (unless they are bringing the smarts themselves).

Getting ‘investor ready’ means you have figured out most of the key issues relating to product;  commercials; brand; manufacturing facility (in-house or out-sourced); marketing campaigns; your team… and much more besides. Ultimately, if you have these issues covered and can demonstrate you have ambition, your business is scale-able and you really understand your target market, then you stand a good chance of convincing investors to back you (and achieve a healthy valuation to boot).

Meeting entrepreneurs who have figured this out is always a joy. They are prepared, they are realistic and they understand their Plan. By comparison, those who don’t, are an irritation. Especially so are those who try to justify a completely bewildering valuation before a ball has even been kicked. Valuing start-ups is notoriously difficult and can be quite subjective. The benefit that a good Plan brings to the discussion is the confidence that this team might just be capable of delivering it!

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