Welcome to part 3 of how to secure investment for your business. This is the final (for now) part in the mini-series. If you have any questions on raising investment, then drop me an email at paul[dot]tranter[at]pcsi[dot]org[dot]uk You might find it helpful to read part 1 and part 2 before continuing. In this post, you will learn five more advanced and less obvious keys for your investment journey. The aim is to help secure the best value investment for your business.
Key 1 – Understand how much cash you will need for the next stage of your journey
Your business plan (proposal or application) should clearly state how much cash you need and what you intend to spend it on. How do you know it will be enough? Your assumptions and estimates will need to stand up to investor scrutiny. As far as possible make them built on fact. Based on the risk profile of your venture (discussed in part 2), add a contingency or margin for error. I have seen this be anywhere between 10 – 50%.
Key 2 – Make it a competition
In the final stages of securing investment having options gives you some leverage over the investor. All-too-often, I see businesses “negotiating” with only one party. That is not a negotiation. If your options are; do a deal or walk away and you can’t afford to walk away, prepare to pay the price for putting yourself in this position. Always have at least two interested parties and if possible, the option to walk away.
Key 3 – Know your customer investor
One of my favourite ways to get behind a business plan is to check or ask what the business knows about its customers (or potential customers). In some ways, your investor is a customer. Ask some uncomfortable questions, they will respect you for it. Where are they in their fund life cycle? How many investments are they targeting this year? How many companies have they invested in that are like yours? Ask for references from previous investees. Ask yourself, can I work with them as an investor?
Key 4 – Really, really study the term sheet
The term sheet is in effect the contract. The contract between your business and the investor. Study it very carefully. Once agreed, it can be extremely difficult to change. I recommend getting specialist legal advice. If you do not have anyone in mind and your business is in the UK try the Law Society. Bear in mind, some investor-types will be looking to exit sooner than others. There is nothing wrong with this it is purely their business model. You just need to be comfortable with it.
Key 5 – Have plan B ready
You want to have your plan B ready to go in case of no deal (I’m refusing to talk Brexit). Ideally plan C and D are also in your pocket, just in case. These could be other finance options or an alternative business plan. For example, to grow more slowly. Remember sometimes it is better to walk away…
There you go, the 5 not-so-obvious keys to securing investment in your business. If you need any help, then contact me as above.
As ever, I welcome your thoughts and feedback. Please let me know in the comments below…
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