So, your business is looking for investors? That’s great! This is quite a common scenario for many successful or growing organisations.
- But how do you know if your business is in fact ready for investment?
- More importantly, how do you build appeal and trust with investors so they provide you with capital?
Unfortunately, many business owners don’t fully understand just how much work seeking investment capital can actually involve – or what it takes to become truly investor-ready. Preparing your business to be investor-ready doesn’t happen overnight! If your business isn’t adequately prepared to take on investors, you’ll likely have a difficult time finding the right people to trust you with their money or have a disastrous experience after the deal is executed. For this reason, we’ve put together this article to provide you with a few tips on how you can get your business investor-ready to present to potential stakeholders.
What does it mean for a business to be investor-ready?
Essentially, for your business to be investor-ready, this means you’ve taken all the necessary steps and collated all the right information in the right format, so everything is ready for investors to look over – including all relevant financial data that explains why you’re worth investing in. Being investor-ready may look different for each business, but one thing all businesses must become clear on is how you want your investors to contribute to your organisation. For example, they may simply contribute cash as a silent partner, or they may become an active partner in your business. That’s why you need to consider exactly what you want to get out of the investment scenario.
Why do you want to seek investment?
It’s extremely important that before you start to seek investment, you get clear on why you believe you need an investor or capital in your business in the first place. The most common reasons that a business owner will seek investment include:
- To secure additional funding
- To take advantage of the knowledge and experience of industry experts
- To expand their network
- To attract a key senior or strategic resource
Remember that seeking investment is like entering a relationship, meaning you have to be careful about whom you choose to bring on board. Consider the fact that you will now have to report to and/or communicate with your investors regularly, and depending on how you structure it, they may get a say in future business dealings.
What do you need to consider before becoming investor-ready?
Think about the following questions in great detail: How involved are my investors going to be and what role are they going to play? You need to think about what it is you’re looking to achieve in your business by seeking investors to become a part of it. How am I going to deal with disagreements? You need to develop effective tools to help resolve differences of opinion with your investors. What are our exit points in the future? Are they aligned or in conflict? You need to ensure that you and your investors are on the same page when it comes to your exit point – or their exit points – from the business. For example, you might be keen to stay small and sell to a competitor in 3-5 years, whereas they may be wishing to list and go public in 2 years – both of which are very different journeys. What metrics do we have in place to evaluate performance? You need to be able to provide your investors with accurate and regular figures around how the business and their capital are growing. Are you looking to show impact and traction, market share, profitability, website traffic, geographic footprint and so on? Other important questions include:
- Are my financials ready to present? (More on this later)
- Am I clear on my business strategy? Is this strategy compelling?
- If an investor walked in tomorrow, would I be happy with what I have to show them?
- Would it be attractive enough for them to proceed with investing?
Here are 6 tips to help make your business investor-ready
Use the following tips to help get your business ready to pitch to investors:
- Create an investor profile
Build an avatar of your ideal investor. Include their background, their key characteristics, their strategic direction, and what involvement you want them to have in the day-to-day running of your business. Is this investment going to be focused around family and friends, philanthropic endeavours, kickstarter programs, crowdfunding, retail investors, IPO, etc?
- Review your internal processes/people/systems
Are they scalable? How heavily do they require your involvement? Do you have all the right personnel to help you achieve success? Make sure your internal processes, people and systems are capable of supporting new investment and growth.
- Create a compelling business narrative
This is the sales pitch you will use to get your investors excited. Articulate your brand story, outline your point of difference, and provide key market share information, successes to date, and key customer contracts to help frame your business in an enticing light.
- Review your financials
If you’re looking to enter negotiations with potential investors, you want to ensure that your financial figures are ready to go straight away. Delays in providing these figures can lead to a lack of trust in the relationship and lower your chances of securing investment. Highlight the journey and the opportunity for your investors using your financial and non-financial figures, including market share, revenue growth and mix, profitability, cash flow and debt, and other key business drivers.
- Prepare an Investment Memorandum
Your Investment Memorandum is the document you will provide to potential investors outlining the background, management, financial and other critical information around your business and the opportunity that you’re offering to them. Describe how their investment will positively impact the business and the results that they will benefit from accordingly. The information in your Investment Memorandum is what you’ll be anchored to, and your investors will hold you accountable and expect targets to be achieved. It’s important to set the right expectations from day one.
- Speak to Dexterous – we can be your ‘pit-crew’ to ensure you have everything in place for you to be investor-ready
Here at Dexterous, we can help you to get your finances in order, normalise your accounts (eliminate one-off and personal transactions), and present your assets (financial and non-financial) to provide a clearer picture of what the future holds for your business to your stakeholders. We can also ensure that you have your ‘dream-team’ ready to go for a successful investment deal to take place. We can put you in contact with the right legal team, financers, due diligence specialists and more. In short, we think of everything that others don’t. Why? Because we’ve been through this process many times before, and we know what it takes to tick all the boxes, get your business investor-ready, and find the right stakeholders every time. Want reliable financial assistance to help guide your business towards investment and growth? At Dexterous, we go far beyond virtual bookkeeping and external accounting services. We provide a turnkey managed finance solution that works for you through a financial, operating and growth lens. This means that we leverage all the latest business tools, access global talent and provide guidance to your financial department with the local expertise of our Sydney team. We also equip you with a strategic approach and cost-effective function to help you become investor-ready so you can thrive and achieve more growth in the future. Reach out to Dexterous and transform your finance department today. For more information, get in touch with us today or connect with us via LinkedIn.
