If you feel the time has come for your small business to grow, and if you don’t have a personal fortune to put into expanding it, you’re going to be looking for investment. This is a situation that most business owners find themselves in at some point. There’s a lot of advice out there, but reading about other people’s successes is only so helpful – some are simply lucky and their approaches may not fit your type of business anyway. Rather than trying to imitate them, you should be thinking about the other side of the equation – about what it is that investors want.
The right investment
The first thing to be aware of when seeking investment is that not every investor is right for every business. Some, sadly, are scam artists, but beyond that, different investors have very different approaches – what you need is to find somebody you click with. You can start this process by looking for people with a history of investing in your sector, then find out what you can about how they have interacted with the business they have put money into. Some investors are very hands-off, trusting business teams with strong vision to operate effectively on their own, and simply sitting back and taking their share of profits. Others are very hands-on, which some business owners find suffocating and others find extremely useful. Establishing the right connection on this level is just as important as getting a good financial deal.
What investors want
Though they prioritize them in different ways, all business investors are essentially looking for two things: strong growth potential and security. No small business is perfect on both these counts, so what’s important is to demonstrate capacity in both areas and an awareness of related issues. Investors can’t rely on your story about your business, however – they need to see the numbers. You will need to produce clear financial forecasts for at least the next three years and be able to demonstrate how your business has progressed over the past three (or as many as it has been around for). Investors also want to know whom they’re dealing with so prepare profiles on each of your key personnel and attach these to a report explaining how your team works together.
Investor profile: Pete Briger
One investor with a strong history of developing small business potential is Fortress Investment Group principal and co-chair Pete Briger, who has been working in asset management for over 20 years and spent some time at Goldman Sachs. He has specialized in taking companies struggling with debt and helping them refinance so that they are able to restructure and regain momentum, but he has also worked with companies that simply lacked the capital to develop their potential. His focus tends to be on human talent at the senior level, marketability and vision.
Making your business more attractive
Making your business more attractive to potential investors is a bit like preparing your resume, in that there are things you can do that are positive all round but there are other changes you may want to make – or points you may want to highlight – in order to appeal to particular people you’re targeting. Among the essential things you will need to work on are the following:
- Trimming the fat – are there parts of your business that cost money but are not really significant in enabling it to function and achieve its objectives? If so, slim your business down to make it look lean and efficient.
- Getting organized – this isn’t just about making your pitch but about being able to produce good data on anything an investor asks about. Evidencing good record keeping gives an impression of diligence and control.
- Summing up your assets – this means not just money, stock and equipment but also things like personnel, brand and reputation. Make it easy for potential investors to see how they could gain by getting involved with your business.
- Getting noticed – even seasoned investors are vulnerable to the instinctive human bias towards people they’ve already heard of. Positive press is a big asset – if your company isn’t big enough to get attention, get your name in the papers by offering expert opinions to journalists.
When it comes to negotiating with investors, don’t rush into the first decent looking deal you’re offered. Anybody worth dealing with will respect you asking some questions first, and doing so is part of how you can illustrate that you have the savvy to make your company a good investment choice.