any companies would benefit from a cash injection to push their business forward. This blog will identify the different types of Investor, what to include in your business plan and the types of investment.
There are different types of investor:
Venture Capitalists – these people operate investment as their core business, they typically look to invest larger sums of money in more mature businesses looking to expand or diversify,
Angel Investors – these are often individuals who have already made their money and are looking to share their experience. They will invest smaller amounts of money and will consider start-ups and early stage companies.
Lenders – traditional finance institutions such as banks, there is normally a set process for assessing the level of risk with the investment. The more proven the company is in terms of sales, experience in the team the less risk.
Family and Friends – this is normally the first port of call for a Seed company (an idea but no sales yet) or a Start Up company. There is a high level of risk which may put other investors off.
Alliance Partners – are there any large companies that are in a related industry that would benefit from economies of scale, shared marketing or a shared office?
Many investors specialise in either a company at a certain stage in their life cycle or a certain industry. To find the right investor for your business it’s worth speaking to as many professional in your network as you can, a warm introduction is likely to be more powerful than scouring the internet and making a cold call.
Ten Must Haves On Your Business Plan to Get Investors
If you are serious about getting an investor, then you need to have considered your business plan from their perspective. Here are the elements that they will expect to see in the business plan:
1. Who you are
- What is the experience of the management team, who are your circle of professional advisors? You can have a great product but if the company is not well managed there will be no business.
- Your management team needs to have expertise in all areas of the business: Finance, Sales, Marketing, Operations and Technology.
2. What it is and where you are at
- What is the product or service?
- At what stage is the product is it just a concept, has a prototype or is it proven with sales?
3. Where you are going
- What are the goals & milestones, this can be in terms of team, operations, product development, number clients, number of units/turnover
4. Who wants it and how many
- What is the target market, what % of the market are you aiming for. What market research have you done? There is no point having something you think people will love if you haven’t talked to your potential customers.
- If you have any pre-orders it will give confidence or provide sales analysis from initial sales to the early adopters
5. How much do they want it?
- How have you worked out your pricing strategy, do you plan to sell low volumes at high margins or high volume at low margins.
- Make sure you have considered your barriers to entry, how easy would it be for another company to start selling the same or similar product and take away your customers?
6. How will you tell them about it?
- What marketing have you done, will you plan to do.
- Make sure you have multiple strategies, ideally with a budget to back it up and a calendar of activities
7. How will you deliver it?
- This is the operations part; what are the systems and processes you will use to deliver the quantities as your business grows. This needs to include the team and skills needed in different areas of the business at each milestone.
- I see many companies focus too much on the sales and marketing and not enough on how to get it out of the door. There is no point investing thousands of pounds in marketing if the phone line to order it is engaged or you can’t get enough product through assembly.
8. Who else has it?
- When your product or service takes off and the money starts rolling in other companies may want in. What are the barriers to entry that will stop them selling to your target market? These could include:
- Patents, copyrights, trademarks
- The systems and ways of working
- Intellectual knowledge
- Most Investors have looked at many Business Plans and will be weighing up your business plan against others. They will see a hole in the plan at 100 paces so it is far better for you to highlight any potential risks.
- If you have or can mitigate (reduce) those risks explain how
10. Rewards and Investment
- Fundamentally this is a business proposition, the Investors are not in it to help you out or as a hobby – they are looking to make money.
- How much money are you looking for, how will it be used. Detail out the burn rate (how quickly it will be used).
- What is the expected return on investment*
- What type of investment are you looking for and how much? Is it a one off amount or stepped with additional needed at different milestones?
- How will the debt be settled or shares sold and what is the expected timeframe?
*Before you can work out the return on investment it is worth thinking about the type of investment you want.
Types of Investment
Debt – Borrowing a sum of money and paying it back with interest
- To be paid once revenue and cash-flow are steady
- What time frames would you be looking at and what frequency would the repayments be?
Equity – Selling a share of the business
- Consider if you want them to have voting rights, of you would consider them to have priority stock so if the company went in to liquidation they would get their money first.
Debt/Equity – A combination of the two, which can reduce your risk
Before setting your mind on anything it is worth doing your research and talking to professionals in this field. A good book to read is ‘Keys to the Vault’ by Keith Cunningham, he has over 30 years of business and investment experience for all sizes and types of industry. There is also lots of information on the Internet.
According to Keith Cunningham only 5% of Investors go beyond the Executive Summary so make sure that the first 2-3 pages cover all the key points!
Key Points from Keith:
- The Company
- The Problem
- The Customer Base
- The Upside
- The Risk
- The Players
- The Numbers
- The Competition
- The Opportunity
Here are some examples of business plans seeking investment – they are American but you will get the idea!
There are often government initiatives that can lend you money at a reduced rate or give you a grant so it is worth checking that before going down the Investor route: check what you may be able to get here: https://www.gov.uk/business-finance-support-finder
Let me know how you get on