At Shadow Foundr we see thousands of business plans every year. A lot of these businesses are great ideas and fulfil a real need in the marketplace. But most of the time, to take your business to the next level or even just to launch it, you will need to secure some investment.
So, the big question is, are you right for investment? Let us take a look at the most important factors that affect someone’s decision to invest in your business:
Is it a lifestyle business?
By a lifestyle business we mean that the company will generate enough cash for the entrepreneur, allow for good holidays but, in reality, not create the kind of value an investor needs. For an investor to make a return, the business needs to be shaped and guided into a position to be sold or even floated. A lifestyle business is therefore a great business for the entrepreneur, but it is highly unlike to attract investment.
Is your business expandable?
This is also referred to as scalability. All businesses start small, however, to provide a good return you must be able to show that you and your team can grow both your business and sometimes the market itself to generate a great return to all the shareholders.
Management team
When an investor is considering an investment, one of the most crucial factors they look at is the management team. To give you an idea, roughly 70-80% of their decision-making process will be based on whether or not the team is good enough to deliver on the plan. Let’s face it, a great management team can sell an inferior product, but a bad team could not sell the best product in the world. If you think there are holes in your management team, do not worry. Sometimes the investment can pay for this to be filled, or the investor may even fill it themselves.
Sustainability
Is your business taking advantage of a passing craze? If it is, it is unlikely to last beyond the first 12 months. The business must have a long-term, on-going place in the market so that value can be built up over years and, hopefully, sold on for a good return.
Commercial Viability
Probably the most obvious, but again, no harm in remembering it. It is one thing to be changing the world or saving lives, but if it does not make enough money in the process, an investor will not be interested.
Interesting – Appeal
Does your business have appeal – is it interesting? Investors are people too and to attract them you need to be different and exciting. They may also get involved and spread the word if there is a big fun factor. We all have a different view of what is exciting, but just make sure you highlight the interesting parts of your business.
Your Personal Finance
It is quite reasonable to be asked about your personal financial situation. If you have expendable cash, then they will want to know why you do not put the money in yourself. If you are driving the business forward, and you genuinely believe in it, then you should put every available penny into it. Another factor is, if you cannot support yourself the business is profitable, then you may not be able to see it through – making you a very high-risk proposition, after all the business relies on you.
Do you really need the money?
It is surprising how many people approach us that do not actually need the money. Think carefully, money is not free, you will be giving away a slice of your business, make sure you want what you will be getting in return – cash. Could your invention be licenced out to a bigger, more established business? Could you get some pre-orders?
Competition
You cannot avoid it. Who your competitors are, how many there are and how well they have done will have a significant impact on your “investability”. If your idea involves going head-to-head with a major player, you could be in trouble, no matter how much better your product is, they have deep pockets and probably a tight control over the supply chain. Products that supplement, improve or bolt-on to a bigger, more established product is a different matter altogether and could prove to be very investable.
The worst thing that you can do is claim that there is no competition. This means that either you do not know your marketplace very well or, that nobody thinks it is a promising idea worth pursuing. There is almost always competition of some sort. Truly unique products that have not been considered or thought of before are not always a sure bet. It may mean that the market do not yet know they need it. This means that you will need to educate them about it, and this can be very expensive.
Remember, success is not all about having the best product or service, it is about being able to sell it to customers better than anyone else.
Barriers to entry
This is crucial. It is one thing to come up with a great idea, but another to protect it. Ask yourself this – ‘how easy would it be to copy what I am doing?’ If you have patented it then that is a good start, but if that is not possible, and you can honestly say that any competitor, even one with unlimited resources, will take at least, say, 2 years to come up with the same product, then you’ve a good chance to establish your brand before they can get involved and that’s a good barrier. This is sometimes referred to as ‘first mover advantage’.
USP (Unique Selling Point)
Every single business should be able to show a genuine list of USPs – the factors that set your business apart from anyone else. These factors need to be strong enough to give you a good chance at making a success of your business over anyone else. Think carefully about these, they are especially important.
Protection
Although it depends on your business, often protecting your IP is absolutely imperative. A product that is easy to copy but can also be patented can be a great opportunity for an investor. It is important that you understand how patenting works, we would recommend you speak to an expert – we know a lot of them and are happy to point you in their direction. Either way, you should look at protecting your ideas before you seek investment.
In our experience these are the key things that an investor will be looking for, before making their mind up to invest into a venture. It is important that you have addressed all of these things in order to give your opportunity the best chance of raising capital.