Companies are under the microscope from the moment they attract a key investor. “Potential investors are making assessments and determinations throughout the whole process—not just right at the start,” RoseRyan director Stephen Ambler warned during a recent webinar. “You’re under the spotlight for quite a period of time,” he added.
For private companies on the funding hunt, their quest is especially tough during the early stages of searching for investors and the process for connecting with them and winning them over. It’s an infrequent occurrence for the team involved, who has to pull their attention from their day-to-day work. And it’s a process that’s rife for possible setbacks as a mismatch could add to the time the company has to wait for much-needed funding.
Here are just a few of the tips Stephen offered in his webinar:
1. Start early.
A last-minute, desperate search is more likely to lead to a bad deal—or no deal at all. Securing financing can take a long time, between three and six months. Build in time to both prepare your company to find the right investor (or a few—as a deal may fall apart), and undergo detailed scrutiny when you do.
2. Get your house and business plan in order, and be prepared for an open conversation.
You should have both up-to-date documentation and your business plan for the next two to three years in place. Not only do you want to show you have good records, but you want to show potential investors a plan, with support, that is attractive, realistic and achievable. They won’t invest unless they see that.
You also need to lay out any dirt you have for possible inspection. No one expects a perfect world, so be open and honest. Investors will not be pleased to find out about a lawsuit after they’ve agreed to work with you. Potential investors want to know where the possible holes are in your business, and they want to be fully aware of any reputational risks they’re taking on once they sign the dotted line. “No investor wants their name in lights,” Stephen said.
3. Seek out the perfect match.
Many investors will only go with companies that fit within the boundaries they have set up for themselves. They might consider only late-stage companies, for instance, or companies that are in a particular industry or already have a rigid exit plan.
Fortunately, many investors explain their parameters right on their website. You can also ask around, to your current investors, board members and trusted advisors, for recommendations. A warm introduction is ideal—cold calling around for your next investor will be time consuming and is less likely to be effective.
4. Make a good first impression.
Professionalism goes a long way with investors who want assurance that your company is on the up-and-up. That first meetup is where the first impression truly counts. A company once called Stephen for help in frustration that they couldn’t get financing. Part of the problem: They had a habit of dulling investors with over two hours of slides. Nearly 60 pages, in fact!
“Your key facts should not read like War and Peace,” Stephen said. “No one wants to see that—it sends a bad signal.”
In just 15 professionally designed slides, you can fit in essential details while showing off the passion the team has for the company, its mission and prospects.
5. Be ready for an onslaught of scrutiny.
If investors are interested, that’s when the real questions will begin as they conduct their due diligence. This is where any prep work you did ahead of time can help tremendously.
Investors want to see key metrics to fully understand how the business is managed and whether they can stand behind it. In addition, you will need basic information that’s up to date and at the ready to keep the potential deal on track—including management accounts, revenue by product, receivables and payables.
Talk about a huge undertaking! Finding and securing investors consumes more time than many executives new to the process realize. They can save some valuable time and increase their chances of making a promising investor match by checking in with trusted advisors who have helped with similar deals and are on top of the trends in the investment community.
The right investor could be just around the corner—you just need to know how to find and keep their interest.
What happens after you find the right investor? Listen to the online webinar “Attracting Funding: What Does an Investor Look For?” at your convenience to hear Stephen’s advice before signing the term sheet and learn important tips about what investors look for as they scrutinize potential investments. This event was originally broadcast on December 15, 2016 and was hosted by Breakaway Funding.
Stephen Ambler is a director at RoseRyan, where he oversees the CFO practice area and handles client CFO requests. He has over 30 years of experience helping a wide range of companies with their financing needs. His interim CFO stints at RoseRyan have included a social media company and the management of the financial integration process at a company acquired by Oracle. He previously held the CFO position for 13 years at NASDAQ-listed companies.