You have had a few years of developing your brand, building customers, made some mistakes and had a few triumphs. You now have ambitions to grow. Debt and grants have gotten you so far. You now need to get an investor to get you to the next stage.
Below are 8 points that I hope you will find useful to manage the journey. It can be a tough but in saying that, focus on your path. Blinker out the people who claim they raised in 10 days. They may live to regret that in 6-8 months!
Points to note:
1. It will take time. Give yourself at least 8 months to get the cash. Pitching, meetings and due diligence can drag on. Seasonality is also a consideration. Angel networks, for example, fluctuate in their investment strategy and are more active 3 months before the end of the tax year (for SEIS & EIS). So please do not wait until you run out of cash to get an investor, give yourself time.
2. It is a very expensive divorce if you partner up with the wrong investor. Most investors will want to have some control and influence. It is OK if you don't always see eye to eye, and actually good to get constructive criticism. What you do not want is someone who will undermine you and basically try to push you out. Listen to your gut.
3. Be prepared to cast your net wide. London is the hub for the UK, however, more regional funds are looking to attract companies to create employment outside of London. Same principle across Europe. Enterprise Ireland, for example, is around the 3rd/4th largest investor in start-ups in Europe. If you are in the tech sector, US Venture capital firms need to be approached.
Also, consider where your customers are. You might have a product loved in India, so an investor in that market might be easier to find.
4. Prepare your paperwork. You will need to have a financial model with at least 3 year's worth of projections and a business plan. These need to tell the story of your business and demonstrate the opportunities and value of your business. Do not be tempted to go too far into the future. You want it to be ambitious but not far fetched.
5. The pitch deck- once you have the business plan and model in place you want to create a calling card. This is your pitch deck. It is usually emailed to investors and funds, therefore, needs to be short and snappy. Pet hate for investors is overly complex file formats and graphics that take ages to download on smart devices. They may want to print out to discuss with colleagues, so resist spending a small fortune on fancy graphics. The deck should be clearly presented and reflect the personality of the company Aim for a maximum of 15 slides and recommended headers are:
- Title page and if you can, get your USP on this slide as well. Be as obvious as possible about what your company does in a short sentence
- Overview of the company, sales to date and major milestones achieved (you can omit this slide if you are pre-trading)
- Problem slide - why is there a need for your company/ or gap in the market you have identified
- Solution slide - how your company is going to solve the problem or fill a gap in the market
- Product/Service slide - overview of products or services
- The route to Market (can be over 2 slides) - how you will enter your market, pricing, cost of acquisition etc
- Competitor landscape - a position map works well here.
- The ask - how much you need to raise and how it will be spent. This does not need to be to the penny, just group costs e.g. marketing, staff, working capital etc. Also, make sure it is enough to sustain your business.
- The financial slide - This needs to cover your P&L for the current year, if trading, through to year 4. Again no need to have every line of your P&L. keep to high-level labels and show EBITA on the last line.
- The team slide - keep to the founders and any key advisors. Stick to around 100 word Bios and a nice headshot. No org chart needed.
- Press coverage and awards - end your deck with a positive and showcase your wins.
- Exit slide - not always needed but if you plan to sell up after 5-10 years set out your stall.
- Contact slide - make sure the investor can find you!
Remind yourself investors are looking to see quickly where the ROI is. Time is money and all that jazz.
6. Investors invest in people, cliched, I know. You can have the best pitch deck on the planet but your first meeting with an investor will be about you. Yes, they will grill you on the numbers, but they will want to make sure they can work with you and see your passion. It is very common for the initial meeting to result in the investor suggesting some major changes to your proposition. They may not 100% like the business but see something in you they want to invest in. So be yourself, don't try to be what you think they are looking for, they will see through you in seconds.
7. The valuation. Now, if you are in a sector with loads of comparable businesses it is easier to come up with a valuation. 4 times EBITA in year 4 and several other formulas are out there. However, you need to be clear before you step into any offices what % you are prepared to give up and how much you think your business is worth. Do not state this in your deck, you want to leave this to the negotiation stage.
8. Investment is never free. VC's and Angels can charge a % fee which they will say is to cover the cost of their due diligence etc. Ditto for crowdfunding and Tier 1 agents. This can range from 4-11%. You will also need a lawyer for contracts and to complete your term sheets. If you use an intermediary or broker to get the deal this will cost a fee. Therefore, if going for investment make sure you account for these costs. at a minimum £10/15k. I have seen one too many companies get caught out here.
Having been through Wayra and worked with a large number of start-ups this is a huge topic so I have stuck to the top 8 in my opinion. It will depend on your sector, how long you have been trading and how profitable you are.
Sometimes you could be just too early for investors, e.g. VR. Investors are a cautious bunch and they need to see something proven first. Or and I hate to say it, you are not ready in terms of profit margins. You may have to do some work on improving your overhead costs and improving your product or service.
If you need help getting investor ready or reviewing your business to get constructive feedback please get in touch.