Raising investment is key in taking your business to the next level, yet we see many founders fall at the first hurdle having not sufficiently prepared and covered all bases ahead of investment.
One common mistake made is placing too much emphasis on quantitative metrics – searching for key stats to show investors, without understanding the value of other factors within your business
So, the key message here is to prepare. By addressing the questions below, you’ll be fully prepared for raising investment for your tech company.
Does your vision disrupt the current market?
Identifying the broken process is one thing, however, you also need to articulate how you plan on fixing it. If your vision is strong enough, you will attract customers, collaborators and employees. However, in order to disrupt the market, you need to convert your vision into reality. This requires top-level innovation which in turn demands a high-quality team to transition your vision into a mission. Check you are able to make the transition from a vision to a fully formed business as it’s the first question an investor will ask!
How strong is your team?
The strength of a team is fundamentally down to whether they are do-ers that will deliver. Surrounding yourself with intelligent, innovative people is a good start but they also need to prove themselves beyond sharing your big dream. In order to impress investors, you’ll need to congregate a group of experienced market leaders. A variety of skill sets across the board will act as an advantage, so make the most out of your recruitment process by onboarding the likes of industry mavericks and tech specialists, to fast-growth specialists.
Is your market scalable and how fast is it growing?
Conquering your domestic market is of course impressive, but VCs will want to know there is growth potential beyond what you have already achieved. If the market is growing at a rapid rate and your business is set to continue being a dominant force, VCs are likely to show interest. However, if the market has limited growth potential it is unlikely your business has the capability to thrive beyond its current circumstances.
Is your product validated by customers?
We’ve already established that quantitative data support is not the only key performance indicator for investors and other elements can act as strong evidence for business success. Performing a demo to potential investors is an absolute must. If you’re not currently at this stage, investors will most likely assume your business is not ready for investment. Think creatively about how best to collate evidence of your customer’s thoughts and feedback. Investors will be looking for startups that are able to show how their product has been adjusted in response to market research.
Are your financial figures consistent?
While not solely the most important growth indicator, financial figures are still extremely helpful in showing consistent and predicted growth. Everyone knows the beginning stages of establishing a business can be unpredictable, and investors will take this into account. However, you should always try to present consistent and verifiable figures. If your numbers are too big and lack credibility, investors are likely to pass. Similarly, if the figures lack consistent growth a VC is unlikely to view your business as a fruitful endeavour.
Is your business fully equipped for expansion?
Staying ahead of the curve is key to business success. While it may not be feasible to expand geographically, ask yourself could you enter a new audience market or create a whole new range of product launches? You’ll need a top-quality team of sales professionals, business development and marketing experts to support operations and facilitate growth, so question whether you have the means to hire.
How can you use your deal terms to attract investors?
Treat your investors as if they are your business partners. You should aim to make the deal SEIS or EIS compatible, so they can benefit from the UK government’s generous tax relief on their investment. Deal terms should be balanced and fair, and shouldn’t discriminate based on the amount being invested. Plan to give non-participating liquidation preferences to all, it is the equitable approach and will prove to your investor you are passionate about your business succeeding.
Starting a business and seeking investment is hard, but the good news is that there’s lots of guidance available to ensure that you’re fully prepared for any tricky questions or pitfalls that will come your way. All investors are looking for is a trusted company that knows its place in the market, has strong indicators of future growth and success, and a one that has the means to thrive in 2022 and years to come.
By Laurent Laffy, co-founder at SeedLegals