Make sure you’re ready, and willing, for investors to fund your business. Securing investment capital is one of the best ways to help you grow your business.
But getting investors isn’t for everyone. It takes forward planning and careful consideration. You also need to be able to prove your worth to potential investors — and have the data to back it up.
Investment capital is best for:
If your business isn’t performing well or is just an idea that hasn’t yet been validated, you won’t likely find any investors.
A financial advisor can be able to help you decide whether getting investment is right for your business.
Angel investors look in particular for a person or team they believe in. They usually get involved just beyond the start-up phase, when capital is needed to develop and commercialise products and services that have been validated.
You’re more likely to get backing from venture capitalists if your business:
They often invest large amounts of money, are more hands-on and expect more control and ownership for their contributions.
Even if your business model is ripe for investors, you’ll need to weigh up the potential benefits and drawbacks.
The benefits include:
Investment capital also comes with negatives such as:
After doing extensive market research and validating their accounting software idea, Carlos Chambers and his team at Common Ledger set out to find investors to raise capital to build their product.
“We got on the phone and rang anyone we could think of who might be interested in this opportunity and tried to build a lot of hype and awareness. We also really tried to build an audience so every person we met with, we added to our investor update list,” says Chambers.
After six months of contacting and updating potential investors, the team’s hard work paid off.
“People wanted to talk and invest. That gave us choice, and choice is a good thing when you’re a small business because it’s not something you typically have.”
Chambers then put some criteria in place. “We thought carefully about the investors who had shown interest and who were really going to accelerate the business and add value.”
Common Ledger ultimately got the most capital from private high-net individuals.
Successfully pitching for equity capital takes time and strategic planning. Many businesses put a plan in place years before they actively seek investment.
Most investors are putting their own capital on the line — so they’ll want proof their involvement will be treated seriously and their contributions will eventually pay off.
You’ll need to plan ahead so you can show potential investors a history of solid financial performance, or a strong business model and promise to grow.
An accountant or financial advisor can help you put an investment plan in place.
You need to be able to clearly demonstrate how any capital will be used to grow and yield good returns.
Potential investors will also want to see:
In addition to the projected return, investors will also want to know what role they’ll play in your business.
An advisor can help you determine whether you are ready for investors and help you prepare to pitch.
Do your homework on any potential investors before you accept their offer.
This will be the start of a long-term business relationship, so don’t rush into anything and choose wisely.
Remember investors will want to be more involved than those who provide other sources of funding, so get a sense of their motivations and experience. It might pay to get references from people they’ve done business with.
It’s also important to get clear on what they expect in return before you commit to any offers.
There are a number of ways you can find potential investors. They include:
If you’re not sure where to start, speak to a financial advisor and your Regional Business Partner Network for support.
Avoid these common mistakes when you get investors on board: