How can you best sell your business idea to investors?
This article is by Jeremy Cummin, director, Sciony
Research from Plexal and Beauhurst showed that funding for UK start-ups seeking investment for the first time fell by 83 percent between March and May 2020 compared to the same period in 2019.
With less money to go around, it’s more important than ever that innovators make their business idea as attractive as possible to attract funding.
Investors want to know that an investment opportunity is viable in the first place and use a similar criteria for assessing viability.
With this in mind, 10 boxes that innovators should be ticking follow below:
1. Basic data – What size is the company and how many people are employed? If a physical product is being created, what materials are required, how are they being sourced and how much does it cost to produce each item at cost? What profit margin does the organisation make? Are there any regulatory requirements and how well is the business placed to adhere to these?
2. Business assessment – Who is the target customer? For example, at the most basic level, is the idea targeting the business to business or business to consumer market? What size is the potential market for the idea? Is there anyone else trying to solve the same problem, if so, what makes this business different?
3. Expertise – What expertise is needed to make the idea a success and who has this knowledge within the business? Does any additional expertise need to be outsourced, for example through partnerships or taking on sub-contractors? Most importantly, what is the ability, experience and track record of the management team?
4. Funding – What funding is already in place, and what’s needed to take the idea to the next level?
5. Intellectual Property (IP) Status – Is an IP strategy in place and have any patents been filed? If not, what is the reasoning behind this decision and what other protection is in place? Do any other patents exist which could hinder the development of the idea? Is the scope of the protection corect? Too narrow and competitors could easily circumvent it but too wide can make it impossible to get the invention patented.
6. Ownership – Who are the key players? Who owns the company and are there any silent partners or investors? Does anyone else have a vested interest in the business? Is there dependency on any other people or suppliers?
7. Research- How much research has been done to date into the validity of the business idea in the first place. If a product is being launched is there a mock-up or prototype which can be experimented with? What formal or informal feedback has there been from potential users of the product or service? Has the offering been tailored to accommodate their comments?
8. Valuation – How much is the business worth? This can take into account the predicted future financial performance, the size of the customer base and the experience and skills of the management. Is it a sustainable proposition and is there a repeat revenue model?
9. Start-up stage – What stage is the business at? When was the idea conceived, what progress has been made over what timeframe and what’s next?
10. Business objective – What are the long-term goals? For example, global expansion, expanded product range, acquisition with a buy-out or disposal of IP?