The relationship with investors will be one of the most important that CEOs will develop and can mean success or failure for their business, so it is hugely important that they know how to secure investment with the right investor going forward.
Melanie Goward, Investment Director at Maven Capital Partners and one of the Engine Shed’s Investors-in-Residence, outlines how high-growth companies can secure the funding they need to take their business to the next level.
Demonstrate the strength, knowledge and experience of your management team
The first thing to demonstrate to any potential investor is that the management team has the skill set, sector knowledge and experience to achieve the business objectives and provide a return on any investment. This includes being able to clearly articulate the product’s USP, the business plan and the opportunity – everything else is an extension of this.
Prove that your product meets a specific and a growing demand
Ensure the product or service addresses a gap in the market, is able to meet a specific customer need and that there is a clear and growing demand for it. To convince any investor this is the case, support any business plan with comprehensive market research and show how barriers to entry have been thought through, so that the product or service cannot be easily replicated. The most successful companies in which Maven has invested start their journey by identifying the gap in the market and creating a product specifically to meet that demand.
Perfect your business pitch
When meeting a potential investor for the first time it is important to show a really good grasp of the financials of the business including, but not restricted to, turnover, margins, profitability, the best / worst case scenario and how this will impact cash flow, the breakdown of costs within the business, among others. Present a breakdown of where investors’ capital will be allocated – is it for research and development, to fund a growing sales team or will it be used strengthen the marketing function? The more detail you can present the better as it will reassure potential investors that there is a strong grasp of how their capital will be deployed and how their investment will generate a return.
Communicate your exit strategy
It seems almost counter intuitive, but outlining the exit strategy at the start of the relationship aligns the business’ interests with those of the investors and means there is an agreed end goal to work towards. This will help keep the focus on the key business milestones and will ensure that decisions are driven by commercial viability and profitability, often resulting in a shorter time to exit, and with a likely increased business valuation.
Think about the type of investor you want to work with
Think about what kind of investor you want on board, after all, you will likely be working closely together for a number of years. Find out about the investor’s approach and speak to companies that have worked with them in the past. Do they engage with the business, without engaging too much? What presence do they have locally? What support do they provide when things don’t go to plan? How do they add value, perhaps by identifying an acquisition, introducing a new client or helping to recruit a key team member? Such questions will help identify an investor whose interests are aligned with your own and who truly wants to help take your business to the next level, rather than just seeking the returns when finally exiting the investment.