Do you have a registered limited company?
For equity finance to work, you need to have a limited company (occasionally limited partnerships are acceptable), which then allows for the allocation of company shares to your external investors. If you are unsure about the advantages and disadvantages of moving from your current structure to that of a limited company, have a look at this resource and speak with a professional adviser.
Do you have an up-to-date business plan?
A business plan is essential if you’re planning on raising any kind of finance (venture, angel, bank etc.) and an up-to-date one including cash flow projections and other financials (see below) is essential.
Do you have up-to-date and detailed financial forecasts for your business over the next 3-5 years?
As part of your business plan you will definitely need detailed financial forecasts for your business over the next 3-5 years if you are serious about securing external investment. Investors will want to see exactly when they can expect a return on investment (normally within this time-frame) so if you can’t demonstrate that through your financials you may need to go back to the drawing board on your business model. As a starting point for putting these types of financials together, make sure the figures are backed up with solid, reliable research on projected growth of your company, future demand of your product/service, and current and future growth of your target market.
Do you have a clear idea as to what you will do with the money that will be invested in your business?
Sounds obvious but surprising how many businesses think it’ll be great to have £80k investment without a clear plan as to what the money will be spent on. Simply generalising that £x will be spent on ‘marketing’ or ‘product development’ is not sufficient to reassure potential investors that you’re not going to just fritter their money away or pay yourself a big fat salary! Take time to focus and think strategically about where you want your business to be and how the money will help you move towards that goal. Always research your costings and put detail on your spending plans to demonstrate a thorough and professional approach to the business.
Does your management team have credible and relevant business experience including industry knowledge where applicable?
External investors such as Business Angels and Venture Capitalists will look at your management team to work out where the strengths and weaknesses lie and whether as a team you will be able to deliver the plans and grow the business. Even though you may feel your team has good all round business experience, you may want to think about ways to add credibility, complementary experiences, industry knowledge and networks to that team through for example the appointment of a Non-Executive Director.
The other area to consider is how you articulate the entrepreneurial skills and attitudes of your team. This will be of particular interest to external investors who will always want to know more about the people who are going to be delivering the business plan.
Do you have a clear exit strategy for your business?
Venture Capitalists in particular are keen on clear exit strategies within a specific time frame. They usually look to invest in high-growth companies with a clear growth and/or exit strategy such as sale or IPO. If you are still unclear about your exit strategy then Business Angels may be a better option to explore however it is worthwhile spending time thinking about where you see the business in 3-5 years’ time, possible exit routes and what needs to be in place to achieve any of these.
Do you have experience of ‘pitching’ your business to investors?
‘Pitching’ to investors is something anyone who is seriously considering equity finance is going to have to get to grips with. I’d be lying if I said it was a piece of cake, but if you are passionate about your business, and have a solid business plan behind you then you’re halfway there. You may be put off pitching by some of the experiences you have seen on programmes such as Dragon’s Den but these are not necessarily a true reflection of live pitching, rather selective snippets of ‘reality TV’ combined with a certain amount of ‘entertainment value’. There are some excellent resources available to support and inspire you as you prepare to pitch and of course a business mentor or coach will be able to provide some short-term support in this area too.
If you’ve worked through the answers to these questions and feel that securing equity investment in your business is not for you, take time to evaluate alternatives such as the increasingly popular Crowdfunding. I’ve written more about this on an earlier post.
Anyone considering Equity Finance should be aware that there are many complex legal and regulatory issues relating to raising finance in this way and professional advice should always be sought. Please be aware that content here does not constitute specific legal or business advice nor should it be taken as such and you are strongly advised to consult an appropriate professional adviser before making any decisions and/or financial commitments.