With it being Valentine’s Day today, it seems appropriate to bring a little bit of romance to the business world. An investor and a growing growing business enterprise getting together could be seen as marriage with a planned divorce (the exit). So bearing that in mind, and with a few romantic metaphors to hand, let’s explore how a business can go about finding the right partner.
Step One – Get in Shape
Before anyone completes the biography section and uploads a photo on a dating app or website, they want to make sure they show themselves in the best light. Preparing to attract investment is the same – you are more likely to find investment if the company is on solid foundations. These are just some questions to consider before you start your search.
- Does the company have the correct team in place to deliver the growth and profit potential?
- Has the company incentivised the team so it isn’t exposed to staff turnover issues?
- Has the company got secure contractual relationships with it;s suppliers and customers?
- Has the company robustly protected its brand so it can execute its marketing plan?
- Has the company sought advice and got good advisers in place to help prevent it making costly mistakes?
Step Two – Look in the right place
No matter what you are looking for, it stands to reason you are more likely to find the right think if you are looking in the right place. So when it comes to looking for growth funding, don’t waste time speaking to investors who mainly provide early stage seed funding.
Different investors invest in different things – so get to know the landscape and who likes what. Some of the initial things to think about are sector, the amount of finance you require and the geographic locations of your business.
Step Three – Dating
You have established you are looking to grow, you have got the company on good solid foundations and you have narrowed down the search so you can take a targeted approach to finding the right investment partner, so it is now time to get to know people.
Before an investor commits to the deal, it is common place for the investor and investee to have known each other for a reasonably long time – they have built a relationship. Given that post deal the company and investor are committed to each other, this relationship building phase is key. We have had many clients walk away from deals as, after getting to know the investor, they simply felt ‘it wasn’t right’.
When in this phase the earlier work will show its worth as, like dating, this is the time when any half-truths will show. Also before an investor commits to the deal, due diligence will be carried out and that really is when any skeletons win the closet will be discovered, so if you haven’t got your house in order you may struggle to secure an investor.
It is worth bearing in mind that desperation isn’t an attractive feature, so don’t leave getting investment until the company is crying out for the money. Also, consider how long will it take to find the right match? How many investors will you need to speak to before you get a year from the right investor? Some of our clients report that they spoke to nearly 100 potential investors before they found the right fit. Even everyday tech brands such as Skype, Hotmail and Facebook spent a lot of time and energy finding the right investors.
Finding the right investor will take time, effort, resilience and a lot of pitching, However if you have put the correct building blocks in place to get the company as ‘investor ready’ as possible the process will be easier and make the completion (wedding?) and resulting relationship (marriage?) a successful one until it comes to exit (the divorce, but one that works for all sides!).
By Jo Nisbet, an Associate in the Corporate team at leading law firm Harper Macleod, who specialises in advising SMEs and high growth businesses.
Harper Macleod are supporting the upcoming Scotsman Conference – Inspiring Growth: Alternative ways to take your business to the next level. To find out more, or to book your place click here.