In line with the vibrant startup culture in Melbourne, where I am currently based and home of the recent launch of Shark Tank Australia, let’s look at the Top 4 Things investors look for when investing into a business.
I work with many startups and small/medium businesses, so whether you are needing funds to get your idea off the ground OR already up and running and wanting to expand your empire, you’ll need some sort of funding. There are different places you can look, but a common and powerful avenue is to introduce an investor.
So let’s look at the Top 4 things you need (and if you don’t have them all, starting implementing!) to get an investor interested in your business:
- Management Team – this is #1 to investors! The best way to show you have a management team is by building an advisory board.
- Investors want to see who is running the business and how strategic decisions are made. Warren Buffett, the legend behind Berkshire Hathaway, advocates that one of his investment criteria is to look for solid stable managements that stick with their companies for the long term.
- This page has a plethora of Warren Buffett quote’s around management and I wish I could simply copy and paste all that Buffett gold right here.
- Jack Delosa, founder of The Entourage and more recently, a BRW Young Rich List debutant, is an authority in buying and selling businesses. Delosa advises “Start-ups often can’t afford a good management team. The smart investor realises; however, that clever entrepreneurs will have three or four mentors who make up the company’s advisory board. An advisory board offers the “grey hair effect”, bringing experience and intelligence to a team that may otherwise lack both.” (original article on Startup Smart)
- The Space You Operate In – your industry and market place.
- Look at the likes of the photo and print industry, hardcopy magazines or businesses like Kodak or The Yellow Pages. The world has evolved and these industries have innovated and made such businesses redundant to an extent. Is your industry a dying breed or newly developed and the next hot ticket?
- Investors are going to be more interested in the buzzing industries like organic/vegan, gamification technology, yoga and pilates, or online shopping for example.
- Your product or service may be in a solid industry that isn’t going away anytime soon. You may even bring a competitive advantage to the table to shake things up and provide a different angle. I have heard Ruslan Kogan of Kogan.com speak with a number of businesses. He always asks “what is your competitive advantage over the other players in your industry?”
- Metrics – the financial position & performance of your business (both past and forecast)
- Any investor is going to want to look at the past performance of your business. How many sales have you made, is it a lean business or quite tight, do you have a solid balance sheet, are all of your ATO obligations up-to-date and employee entitlements paid, what is your share structure, what is the valuation of your business? I could go on but these are the staples. My point is: you need to understand your numbers and have regular reporting and accountability with your accountant.
- When I say “you need to know your numbers” I literally mean that. If you meet with an investor, they’ll ask you questions about specific metrics in your business and you need to reply on the spot “bang” without flicking through and checking a P&L or saying “my accountant looks after all that staff”…..FAIL. Get savvy with your numbers and if you honestly don’t understand them, ask.
- Monthly management reports not only provide insane insights into your business to help you grow and innovate, they provide reassurance to an investor that you have your head screwed on, you understand the numbers are important and you have an accountant guiding your decisions.
- Exit strategy – how is an investor going to cash out?
- Anyone who has read “The 7 Habits Of Highly Effective People” (by Stephen Covey) will know that habit #2 is: Begin with the End in Mind.
- Any investor wants to know that their cash is safe, the investment will provide them with a return and they will get their capital back one day by cashing out or a sale of the business.
- Many businesses are driving blind with no known destination. An investor wants to know what are your plans and how do they fit in. This could be anything from cashing out in 7 years as part of a strategic sale or floating on the stock exchange.
- What is the strategic vision and goals of the business? Is their a exit plan in place that the business is driving towards?
So what I want you to do is apply the above 4 tests to your own business. Even if your strategic plan doesn’t involve any investment, the above guidelines will help improve any business, regardless.
If you’ve had someone invest in your business I’d love to hear about so please comment below.