Whether you’re a start-up or looking to grow your existing business, it’s likely you’ll need some sort of financial injection to get things moving.
However, in spite of the growing numbers of willing investors in the UK, most business owners still look elsewhere when it comes to raising funds.
In fact, only 2 per cent of business financial assistance is sourced from peer-to-peer lending or equity investment.
This figure seems especially small when compared to the 75 per cent who would rather dip into their personal finances than ask someone else to help fund their business!
Think there aren’t many willing investors out there? Think again.
According to a NESTA study, there were around 4,000 to 6,000 angel investors in the UK in back in 2009, happy to provide an average of £42,000 to each business they chose to invest in. These numbers have only grown since then.
In short, there are a lot of investors out there, keen to find the next inspirational company to work with. There’s no reason why that business couldn’t be yours.
The big question is – how can you convince them that your company is the one to back?
Firstly, a word of advice. Creating the perfect pitch is important, but it’s not enough to secure the investment. In order for your business plan to capture an investor’s interest, it needs to be more than just a slick presentation.
It needs to show real potential for growth. It needs to grab attention for the right reasons. And it needs to demonstrate a clear understanding of the market.
In order to succeed, you need to understand what exactly motivates an investor to open their wallet. Here’s a few things that they’ll be searching for when reviewing your pitch.
Promising products and services. An investor wants to see a product or service that will genuinely stand out in the market. This doesn’t necessarily mean you have to reinvent the wheel. But, if you’re planning to set up a business that already exists in the marketplace, you’ll need to show differentiation.
Ask yourself the following questions. Why is your product or service different? What problem does it solve for its users? What makes it unique? Your investors will want to see something dynamic, appealing and saleable. If your business model feels a little bit tired, then it’s not going to excite anyone, least of all a canny investor.
An inspiring business-owner. Remember, an investor isn’t just interested in your business. They’re interested in you too. They want to see an individual that is highly motivated, preferably experienced in the field, and who has a background of success. It helps if they like you too – after all, you may well be working closely with them in the future.
Market knowledge. Your investor is focused on one thing, and one thing only – the success of your company (both for your sake and theirs). However, your business doesn’t exist in isolation. It is part of a much broader market and will have stiff competition, regardless of what industry you’re operating in.
An investor may not necessarily mind a bit of market competition, as long as there’s a big enough slice of the pie for your company to take.
However, what they want to see is that you understand the market. You’ll need to demonstrate clear understanding not only about your competition, but also your target audience.
Who are they? Where can they be found? And most importantly, do they really want your products and services, or have you just presumed this is the case? Market research can help you find out this important information.
Room for growth. Ultimately, an investor will want to see a good return on their investment, preferably within five years or so. In order to make this happen, your business will not only need to do well, but achieve year-on-year growth.
When examining your business plan, investors will want to see that it’s scalable. They’ll be looking for evidence that the business model is built to get bigger and more successful. They’ll also want to see evidence that you’re poised to cope with significant growth, and willing to put the effort in if things don’t progress as speedily as planned.
Realistic thinking. There’s no such thing as the perfect business. Every company in operation has weaknesses. However, that’s not necessarily a problem, providing you know and understand them, and know how to manage them properly.
Your investors will want to see that you’re realistic about your company, and that you’ve thought carefully about how you’ll manage your existing weaknesses, with a view to turning them into strengths at a later date. Trying to conceal flaws in your business model is unlikely to work – investors have famously eagle-eyed vision when it comes to spotting weak spots!
Number crunching. Try not to shy away from numbers when creating your pitch. There are certain things your investor will need to know before investing, and a lot of that information will relate to the facts and figures of your company.
For example, they will want to know what amount you need for marketing, based on your knowledge of the market so far.
If you plan to advertise on Google, you’ll need to have a good idea of how much your keywords will cost per click, so you can work out how much you need to spend per month.
Need to invest money in flyers and brochures? If so, how much? And how much return can you expect to see from this?
You’ll need to know your profit margins like the back of your hand, plus any other costs you’re likely to incur when growing the business. Fail to know these important numbers, and you’ll only evoke the frustration of your investors.
If you’re looking for investment in your business, make sure you reserve your tickets for the Business Funding Show on the 2nd and 3rd of February, 2016.
Here, you’ll not only find out all you need to know about investment from some of the country’s leading experts, but you can also talk to investors, seek advice and pitch your ideas.