Any small business looking to attract investment will usually have to fight for it. Investors meet hundreds of entrepreneurs and have heard countless ideas. Getting their attention means taking a considered, measured approach.
Here, the UK Business Angels Association’s Jenny Tooth (CEO) and Rod Beer (Managing Director) tell us what they believe investors look for when businesses approach them.
Not sure where to go for investment? Read our guide to Finding an investor
“[Many investors] don’t start investing until the company has started to show some commercial traction, whether it’s really early proven trials or customers actually being sold stuff.”
|Rod Beer Managing Director, UK Business Angels Association|
Before you approach an investor
Investors spend a great deal of their time hearing pitches for funding, and only the most prepared businesses make a lasting impression.
Although you might believe you’re all set to start seeking investment, can you say for sure that you’re ready?
You’ll likely increase your chances of success if you do the groundwork and think about things from an investor’s point of view. This includes asking yourself questions such as the following:
Do I need finance right now?
Most investors will want to see some kind of proof of concept, or evidence that your business has proven itself. If you’re coming in with little more than an idea, expect to be turned down.
Instead, aim to demonstrate — through research, data and testing — that there’s a market for what you’re selling.
A product already showing strong sales means there’s demand. As a result, you’ll likely have a deeper pool of investors interested in coming on board.
If you decide it is the right time to seek funding, be prepared for questions about exactly how you’ll use the money. Investors want to know that they’re financing growth and stand to receive a return on their investment.
Also be aware that many investors expect businesses to approach them during periods of success and growth rather than times when the money is running out.
Do I have a strong team?
Growing a business relies heavily on having a skilled team in place. Investors will look for this above most other aspects when deciding whether to invest.
They want to see a team comprised of hard-working and passionate individuals whose skills complement each other and who will each play a role in the business’ future success.
Before you seek funding, establish whether your team has the necessary skills, experience and determination to succeed.
Address any gaps so you can go into any investor meetings certain that your team is as solid as it can be.
Have I researched the investors I want to work with?
A vital part of the process is doing your research and making sure you target only those investors who are a good match for your business.
Why go into a meeting without full knowledge of who it is you’re talking to?
- Examine each investor’s background and track record to see where they’ve had success
- Understand the kinds of businesses they favour and why
- Identify which criteria they employ when making their investments
- Find out what’s important to them
“Look for investors who have experience, not just passion, for your industry. If they don’t have that, then you want them to bring some very big skillset that you’re missing.”
|Jenny Tooth CEO, UK Business Angels Association|
Understanding the types of investors
Investors are all very different. They have their own requirements for which businesses they’ll invest in. And they have varying expectations around their involvement and the outcome of their investment.
They might choose to invest based on:
- stage or size of investment
- industry or sector
- their existing portfolio
- personal preferences
Below, we show some common types of investors and the kinds of businesses they typically work with.
|Local to the investor|
|Scalable business proposition|
Venture Capitalist (VC)
|Track record of success|
|Potential for rapid growth|
|Likely to generate large ROI|
|Product or service with unique selling point|
Corporate Venture Capitalist (CVC)
|Similar industry to the investor|
|Offers strategic benefits|
|Profitable and showing consistent growth|
|Highly scalable product or service|
|Strong ambitions and long-term vision|
Note: This isn’t an exhaustive list of criteria and investors typically make decisions on a case-by-case basis. The characteristics of each type of business above aren’t exclusive to that particular type of investor.
Making your approach
As always, first impressions count. Your aim now is to sell yourself and demonstrate to the investor that your business is worth paying attention to.
Because you want to establish a working relationship you can build on over time, it’s best not to focus on the money initially.
Instead, you could begin your dialogue by asking the investor’s advice, and then act on any useful feedback they provide. You want them to take a keen interest in your business’s growth and success.
Generally, there are two ways to approach an investor:
This is when you’re introduced to the investor by someone they trust, such as:
- a colleague
- a friend
- a lawyer or accountant
- another entrepreneur
Being referred this way might make it more likely that the investor will listen to your pitch and possibly go on to invest in your business.
LinkedIn is very useful here. Go through your connections and any contacts you’ve made at networking and business events. Look for people who have links to your chosen investor.
Don’t settle for the first person you find. Instead, identify the strongest possible connection and ask whether they’ll make the introduction for you. If they’re unable to, ask if they’ll put you in touch with someone who can.
“Talk to key industry players and persuade them of your viability. That gives you credibility and shows you have the ambition to scale. Either those people invest in you or they might know someone else who will.”
|Jenny Tooth CEO, UK Business Angels Association|
If you can’t find a mutual connection to refer you, your only option is to “cold-call” the investor themselves.
While this is typically less effective than the warm approach, presenting yourself as professional, passionate and knowledgeable should stand you in good stead.
Some investors (particularly Angel Investors) have functions on their websites for entrepreneurs to reach out to them.
You’ll be asked to submit certain information, such as a pitch deck. Online, there’s also LinkedIn and Twitter.
If your chosen investor isn’t active on any social media platforms, write them an email. However:
- keep emails concise and to the point — a long, rambling message is likely to go unread
- show that you’ve done your homework — the investor wants to see that you understand exactly what they look for in an investment
- don’t mislead with false or inaccurate information — it’s better to be honest about your weaknesses or shortcomings