Raising capital, what's important when preparing for investment?
A good point was made recently by Ian Merricks of Whitehorse Capital - preparing and pitching for investment is incredibly time-consuming. Do you really need investment to grow? Can you grow organically? For some, the answer will be obvious, but for others less so. Have a long think about it.
What stage is your business at?
Where you look for investment depends on the stage your business is at. Idea stage is sometimes self-funded as can be proof of concept stage but is often funded by friends and family. You may also have connections with a business that has a shared interest in what you're doing, who may be able to offer funding and advice, access to market etc. Seed stage businesses typically have some traction and look for investment in the £000k's to scale towards their larger goals.
Early stage investment
Most early stage businesses could be attractive to an angel syndicate or potentially you could be part of an accelerator program which has an investment arm such as http://acceleratoracademy.com.
Check investors investment profile to see if they have interests and expertise in a similar area as you. Make sure there is a mutual benefit to both parties. You want more than just money at this stage of your business, 'smart money' is about opening doors, plus the investor sharing their experience to hopefully stop you making some costly mistakes.
Consider applying for EIS & SEIS approval for idea and seed rounds as Angels expect the tax break.
Later stage investment
As your business grows to >£100k MRR, then your plans my require you start pitching to institutional investors such as VC's for your series A round. VC's often want to do deals for >£1m due to the cost of administrating a raise (likely to be £150k+). However, remember to make friends with those types of investors as early as possible. You want to be on their radar when you’re growing so you can provide regular updates as to your progress.
Many investors need to see sales revenues before they’ll invest. They want you to demonstrate that you have looked at a market, identified customers, have a process to sell to them and show there to be a need for your unique product. That proof is sales and preferably repeatable sales.
If you have not started selling, do you have pilots that are due to turn into sales? If this is the case then you need to be able to prove that is the case.
Are you selling B2B, do you have any partnerships in place? Are they selling for you, or are you part of their ecosystem? Many successful startups have created complimentary products as add-ons to existing ones that maybe have great market share (e.g. There are a lot of companies riding on the salesforce.com gravy train). This is often a great exit strategy too. Build a product that has a great market share, which is complementary to an existing solution. These companies often invest in such early stage businesses.
Use of funds
How will you spend the funds you receive? Does your ask give you have enough runway before you need further investment?
I've read in other places that you can do what you like after you have received investment, but an investor is most likely going to keep tabs on your spending so you need to keep to the plan that you have sold them; naturally there are always changes though.
Making your business growth directly related to the investment received is a good way to get an investor interested in you. You'll be less attractive if you say you need to get an office and nice coffee machine or make your product market ready. You should try and be ready to grow (generally speaking).
What are your achievements? What traction do you have? What team have you assembled, or have ready? What have other similar companies raised at? Get some advice from an experienced advisor. Also, consider the type of investor you are pitching to. There's no point asking for millions from an Angel.
ROI for investors
What is your break-even point? Show your revenues, costs, EBITDA and make sure you forecast 5 years out as investors want to see that you're thinking long term and what the exit might look like for them.
Now that’s a whole blog in itself! Please check back soon…
I hope you gained some insights into being investor ready? Please get in touch if you have any specific questions and I will do my best to help!