Finding investors is an important moment in any start-up journey. Perhaps you need an injection of cash to support a big growth stage? You might also recognise the need for external advice and guidance as you grow the business. Perhaps you’re ready to sell off a sizeable chunk of the business you’ve grown for lifestyle reasons? Whatever the motivations, there are certain elements you need to be aware of as you try to prepare yourself for investment.
Get the story straight
However the investment process goes down, you will need to pitch and present yourself, your team, and the company to investors along the way. To be attractive to investors, you will need to be able to clearly outline a number of things.
Hexagon’s Chuck Matthews knows a thing or two about investment and acquisitions. “I’ve done five acquisitions, two where I sold the company and three where I bought a company,” says Mathews. “Getting ready for it is all about having a very clear and compelling story prepared that balances the power of the technology, your team, the commercial outlook and then finances. This must be done without exaggeration but presented in a super positive way.”
Some key questions to start answering now are:
- What are your growth ambitions, your vision?
- Do you have a strategy to get you there?
- Do you understand your market? Do you have product market fit?
- Who are your competitors and what makes you different?
- Do you have a strong handle on your operational metrics and financial data?
- How will you monetize the business?
- Are you missing any key skills in the business?
- Have you considered how much of the company you might be willing to give away?
Get everyone involved
Securing investment isn’t the job of the CEO and the CFO alone. Senior figures across the business should understand what you’re trying to achieve, why and how – ready to be pulled into the process at any given time.
“Getting the management team involved early was very important to us,” says Mathews. “Our internal teams in the companies I sold were always very well prepared before the conversation even started. You want your commercial and technical leadership connected and keeping each other informed as you go through the process.”
Do your homework so that investors can do theirs
Due diligence is a crucial part of this journey – any potential investor will be asking you some in-depth questions as part of this process. “A lot of prep work needs to be done to make the process as smooth as possible,” adds Mathews.
Due diligence should broadly fall under the following categories:
- Legal due diligence – matters such as corporate structure, contracts, assets, intellectual property, insurance, compliance, employees and any leases or other property
- Financial due diligence – the current financial status of the company, any accounts, any past performance of the company, financial projections and any debtors or creditors
- Technical matters – where a product or service includes a highly technical aspect, the investor may or may not appoint an independent assessment of the product or service
- Commercial due diligence – market share, commercial processes, competitors, commercial viability and customer base
“Cleaning up your balance sheet and P&L statement is crucial,” says Mathews. “It needs to look really healthy and have steady continuous growth in revenue and earnings, or forecasts. If there are any strange numbers that might show up in any given year or in any line, you must have concrete explanations so as not to cause concern.”
Get your expectations out there
Once you’ve done all the hard work of presenting your company in the best possible light, it’s time to talk about what you all want and what you’re planning. Aligning on this is essential if you’re going to avoid problems down the road.
“Expectations are the secret sauce when it comes to successful deals,” says Mathews. “To end up with a positive deal, ideally you want expectations on both sides of the deal to be exceeded when you execute.”
Part of this is ensuring you are being clear about what you hope to gain from the process. But also making sure that you are going to work well together in the long run. “One of the important things to get right is cultural fit,” says Mathews. “You have to be very careful about the motivations for people and understanding continuity on both sides. If I’m a buyer or investor, am I going to be there two years from now? What is my plan and how much participation can you expect from me?”
When you feel it’s time to start engaging the market about potential investors, it’s always a good idea to start with your own ecosystem. Do you have a mentor who can advise? Can someone in your network start to make introductions? Get the ball rolling by expanding your network and doing your research.
Further reading, watching and listening: