Top tips for getting your business investor-ready in 2021

Following the events of the last year and the impacts of the pandemic, many businesses will be seeking cash injection in 2021 and doing so in a particularly challenging and competitive market.

However, as a light at the end of the tunnel draws ever closer, there is cause for cautious optimism in the investment market in 2021. So, what can companies do to attract investors and stand out from the crowd?

While there is much to consider on the road to investment, and while the journey will differ from business to business, below are our top five tips for getting your business investor-ready in 2021.

Shop around

In the context of investment funding, there is no 'one size fits all'. Whilst getting cash through the door may be the priority, it is important to consider which means of doing so is best suited to your business. The good news is that there is a wealth of finance options out there to help your business grow.

One option is equity investment (i.e. offering shares in your company in exchange for cash investment). At one end of the spectrum, that might involve approaching family members or angel investors for investment, offering equity in return. At the other, consider whether your business would benefit from approaching venture capital firms, high net worth individuals or the investment arms of public agencies. Deciding where your business falls on that spectrum will depend on factors specific to your business (such as the stage and size of the business, and the size of investment required).

On a related point, it should also be borne in mind in that investors can bring more to your business than just funding. Indeed, investors often have particular expertise, and having access to that experience could be just as valuable, if not more valuable, than the cash on offer. However, the company may also need to make certain assurances to the investors (known as covenants) that, for example, investors will be provided with monthly financial reporting, or that the company will not make certain financial commitments without the investors' consent. 

Another option is debt funding, for example via loans or overdrafts. This might be an attractive option where the preference is to retain total ownership of your company. However, debt funding usually requires the borrower to grant security to the lender over the assets of the business. In seeking debt funding, you should also be prepared to demonstrate that your financial forecasts are accurate, realistic and most importantly, that your business will be able to service any such debt.

You might also consider alternative options such as funding grants, online lending platforms and the possibility of entering into collaborations or joint ventures. Our COVID hub details the various COVID funding options available, and can be accessed here.

Be clear why you want investment

In seeking investment, it is important to understand what investors want from their investment, and what makes a business eligible for the finance they provide. In demonstrating this, clarity is key. Have a clear idea of how and why your business would benefit from investment.

Every business has ideas for growth, but what sets successful investees apart is their ability to demonstrate a strong track record, which can guarantee the likelihood of success over the lifetime of the investment.

Be clear on why you have approached a specific investor, and most importantly, how you have arrived at the investment amount required.

Tell potential investors exactly how their investment will be used to benefit your company over the lifetime of the investment. Depending on the nature of the business, a roadmap might be a useful way of doing so. A roadmap shows an investor where and when their money will be spent, and which key milestones are to be met.

Know your market

Demonstrating a good understanding of your target market and thorough research into your target customer base is essential for persuading an investor that your business is worth investing in.

Being aware of domestic and international market segments shows that you clearly understand what your competitors are doing, and what it will take for your business to be successful in its sector.

Importantly in 2021, you should also demonstrate knowledge of the wider market. While forecast investment trends for this year expect unpopular sectors to benefit from a resurgence, they also expect 'Covid safe', high growth markets such as technology and healthcare to continue to dominate. Consider where your business sits within those markets, or what your business has in common with their success. In doing so, highlight your business' resilience and innovation in response to the events of the last year.

Prepare a business plan

Preparation is key in attracting an investor, and it is important to have the right mindset when approaching potential investors. A comprehensive business plan will demonstrate that mindset, setting out your business' objectives, strategies and financial forecasts.

Demonstrating clear growth ambition supported by evidence is essential in giving confidence to your investor that you know the direction your company is heading.

After the last year, assessing how market dynamics might affect your plans and how customer demand might change is also key. Don’t be scared to surface potential risks – it shows you have properly thought through your business plan and are prepared to deal with those risks should they arise.

Plan an exit

Investors will typically want to understand your exit strategy, and most investors will want to realise their investment within 5-7 years. As such, investors will be thinking about how they will exit your company in future in order to maximise their return. For example, you may need to decide what would happen in the event that a third party wanted to purchase the company and whether you should have the ability and/or right to buy out your investor at a specific price and time in the future.

Show investors you have considered their path as well as your own.

Brodies can help

Once you have secured investment, be prepared to consider the next steps, such as preparing for the investor's due diligence into your company's affairs, and what rights and warranties you would be comfortable offering. It is important to seek professional advice as soon as possible within this process. This will help you avoid common errors, and to document the agreed arrangement in an investment/shareholders' agreement. For further information, please get in touch with a member of Brodies' Corporate team.