7 ways to prove value to investors
When investors put money into your business, they’re looking for a financial return on their investment.
Understandably it can be tempting for businesses to focus just on the money. And whilst a strong set of financial projections is essential, there are other ways to prove value to your investors – and to give yourself the very best chance of success.
We’ve compiled our top tips for catching your investor’s attention and showing that you understand there’s more to investment than just money.
1. Do your homework and plan a personal approach
Your investor will be your partner for years to come – so make sure you do your research before you approach them. You need to make sure that you’re a good match for them – do they specialise in your sector, have they invested in similar businesses?
But you also want to make sure that they’re a good match for you – how do they treat founders when things go wrong, how do other businesses view them? Prove you’re serious from the very first contact and don’t waste anyone’s time.
Try to get an introduction from your existing contacts and networks. If not, write a personal email or make a phone call yourself. Avoid copy and paste, and make your approach as bespoke to the firm (and preferably individuals on the investment team) as you can.
2. Prove your credibility
It’s easier to buy into a business when someone you trust has already validated it. Investors have big networks, made up of other investors and relevant sector experts. They value businesses who surround themselves with experts – because they’re proving that they want to work hard and excel in their field.
Find advisers and mentors in your field, who can offer you invaluable help and support. Their presence as a guide or even a non-executive director gives your business the seal of approval in the eyes of investors.
3. Talk around the money
Of course your balance sheet, financial projections and credit score are all important in investment discussions. But it’s simply not enough to provide the numbers. Investors need to understand the assumptions behind the numbers, the plan that allows you to project and the story you’re trying to tell. They want to see a business that brings more than just a spreadsheet.
Most investors want to see a topline ‘pitch deck’ at a first meeting. Keep the detailed financial breakdown in your back pocket, but concentrate on your growth story. If in doubt, ask your investor what they’d like to see at the meeting to make sure you’re prepared.
4. Let your Unique Selling Point shine
Fever-Tree showed Private Equity firm LDC exactly how their product stood out in the market – by bringing tonic water to the pitch meeting for the investment team to taste for themselves. Can’t show your product or service in that way? Create marketing materials that can, or bring customer and supplier testimonials with you.
Your product or service sits in a specific market. Prove you understand that market, your competition and by extension your own business model, as part of your pitch. Show any market research you’ve done and explain why your advantage over your competitors is sustainable.
5. Prove your passion – and your practicality
The very best businesses balance their enthusiasm with good business practice. They’re confident in what they do, but they can keep a level head where business is concerned. So while you see the ambition in wanting to sell your business to Google in the next two years, your investor knows that business successes don’t spawn so quickly.
Be realistic in your ambitions. Of course you should always think big, but remember that your investor is looking for a return. They want to see a plan that they believe you can achieve.
6. Look long-term
Whether you’re planning for multiple rounds of funding or simply showing how a single investment will play out over the next six or seven years, investors want to see a future-focused plan. How much money will you need? Over what term? What happens if you run out of cash?
Cost out each initiative you want to fund over the next ten years. You may be asking for just a first funding round, but make your investors aware of your long-term plan upfront. It shows vision and forward-planning, both of which are attractive to investors.
7. Be honest
No business is perfect. It’s far more important to be transparent when you’re explaining your business than to over-sell and get caught out later. Be honest about where you’ve made mistakes and where you think your weaknesses are. A good investment partner will want to work with you more if they can trust you.
Turn your weaknesses into a negotiation point. If you’re missing valuable management skills, ask a member of your investment team to sit on the board and help upskill the team.