Taking your business to the next level is a tricky… business. Many start-ups try and fail to get themselves investment ready, falling into common traps, the main one being trying to gain investment too early. But how do you know when your company is investment ready?
First of all, consider why anyone would want to invest in you
There are many reasons people might want to invest in your business, and it isn’t always about revenue. Perhaps you have a particular talent an investor knows will be lucrative in the future, or maybe your start-up is in a sector or industry in which there is about to be substantial growth.
Before you head out to investors, you should know what your value proposition is, and who would be interested in investing in your company. You might consider crowdfunding instead of approaching venture capitalists.
Look first for a few dozen people with a proven track record in your industry and get their contact details. Remember, it is highly likely they get lots of proposals every day, so make sure you are well prepared before you approach them, as you might not get more than one chance.
You should know your business inside and out, as well as how to sum up the problem it is solving, and the best route to your target market. Investors will do their due diligence, but they will expect you to know.
How healthy is your revenue model?
This is important because a strong revenue model will obviously be a lure for investors. You should be able to prove through proper modelling that your company will turn a profit across three years. Break this model down annually, and show your investors how their investment is going to influence revenue streams.
You should be able to provide updated financial projections and be clear on how much money you need, what it is for, and how it will impact your business. If you’re not able to do that, you aren’t ready yet.
Is your product roadmap promising?
You’ll need to be able to show potential investors the major goals and milestones you plan to hit in the next few years, so that they have a good idea of how you’re planning to get them a healthy return on their investment.
You should be able to forecast this in detail.
Is your valuation impressive?
You need a valid and realistic valuation that you can justify, so you should have a professional look at your annualised revenue, cash investments, scalability, and profitability, and value your company on that basis. This will help you to determine how many shares you can sell.
So long as the broader context looks favourable for your company, the higher the valuation the higher the sale price to an investor, but you should be aware that many companies that were once secure have been damaged by COVID-19, and this has made investors wary.
Is your team impressive?
Don’t underestimate the value of a talented team of individuals. Investors could be inspired to invest in your company based on talent alone. The more diverse your team the better, and a management team with a proven track record – one who has grown and exited a business before – is extremely attractive to an investor.
What is your exit strategy?
Your investors will want to know how they are going to get their money back. This is probably the most important question you need to ask yourself before you consider opening your company up to investment.
You should look at similar company exits and weigh up the benefits of an IPO versus a sale. Your investor will want to know what your eventual aim is, and that all founders agree on the plan. This will make your investors feel safe, and in this market that is absolutely paramount.
How not to fail
Most pitches go wrong because of issues in the market, management profiles, and issues with financials, so these are the three key areas to consider if you are thinking of opening your company to investment.
Lean on other leaders through LeaderBridge
If you are looking for more information and advice around how to make sure your company is investment ready, LeaderBridge can help. LeaderBridge is a unique platform for founders, where you can ask questions anonymously relating to start-ups, scale-ups and challenges. It’s a great way to gain unique perspectives from other founders.
Our users are vetted, so you can be sure you’re really talking to other founders, and there is no recruitment or spamming allowed, so you know you’ll get an experience free from bother.
For one-on-on support from peers around the world, join LeaderBridge today.
