What sort of investor do you want?
There are a wide variety of investors and variety in the type of investments that they make. The first port of call for a new start business is usually friends and family, but they usually only provide cash and don’t take an active role. (Don’t forget to make any investments made by them formal arrangements). Angel investors may bring non-monetary benefits to the business (smart money), and they may invest without taking a board seat. They may have a broad range of contacts that they can make available to the business to help it succeed. Syndicates of Angels could be a real benefit to any business, the amount invested could be greater as there are more investors involved. The increased volume of investors may mean more business contacts and open doors for your new start company. Venture Capital usually means a greater level of investment and the fund managers may well only invest in one sector, so you will need to research the best type of VC funder for you. They will almost certainly take an active role in the business and will have huge experience. If your business is more B2C, have you thought about considering equity crowd funding? There are a number of platforms available to consider.
Do you know what the investor wants from the arrangement?
Why does an investor invest? Try to think of the arrangement from their point of view. What is the reason that they invest in a high-risk business with no safety net? Obviously they will want to make a return on their investment, so when you are preparing your business plan, you will need to keep this in mind. How will they generate this return? Will your choice of investor limit you to certain types? Some will need a quick exit in order to generate the return on time whereas some may be prepared to let their investment ride and grow the company more. But don’t forget, that at some stage, the investor will need an exit of some sort.
What’s your long term plan for the business?
If your goal for the business is to pass it on to the next generation, then equity investment may not be for you. You should probably consider an alternative type of funding for the business. If you are prepared to take on an investor, what percentage of the business do you think that you are prepared to give away in return for the investment? Will you lose some control of the business and is this a good thing or a bad thing? Are you prepared to own a smaller amount of a much larger company, or do you want to own it all? Is your goal to grow this company, sell it on and start again? Can you do that or do you want to keep the business in its entirety?
Is your business plan balanced?
Every business needs a road map of some sort – usually written down in a business plan. Does your plan attract an investor’s attention? Is it balanced between all the areas that an investor will expect to see covered? Many business plans are far too product-centric, or have so much research in them that they lose the balance of the plan. Some constantly refer to appendices or other information not contained in the body text, and this can lead to a very frustrating read. Consider what investors want covered; management team; exit potential, revenue potential; and route to market are usually the top choices – but you will need to cover all aspects of the business plan. Make sure that these four areas are well covered in your plan.
Can a non-industry person understand the plan?
Don’t forget that investors of all types read many business plans each month. The easier that your plan is to read, the better. If your business is especially technical, will a non-industry person understand it? It can be very frustrating reading a plan that is so full of industry jargon and acronyms that it doesn’t flow. It stutters and stops and sections need to be re-read over and over again to be understood. A good business plan should be a compact document. There’s an industry feeling that the bigger the business plan is, the further the company are from investment. A business plan should address all the relevant areas, but it should address them succinctly, using plain English and flow. Proof reading by non-industry readers is usually the best way to achieve this.
Seedcorn Competition 2018 now open for entries with a total cash prize fund of €280k. Interested? www.intertradeireland.com/seedcorn