Last week we heard from Doug Richard on why start-ups should avoid taking outside investment until the last minute. In the second part of his article Doug outlines what you should do when the time finally comes to find an investor. Over to Doug:

Finding an investor

“Once your business has a product that meets customer needs and you have more orders than your current infrastructure can handle, you are ready to look for an Angel or potentially a Venture Capitalist to provide outside funding.

Angels are usually high net worth individuals and you can find them almost everywhere. Here are some pointers: 

• They may be the CEO of your largest customer.
• They may be another customer of your company’s accountant.
• They may be professionals you meet through the local chamber of commerce. 
• You can also find them online writing blogs, on LinkedIn and other social networking groups. 
• You can find them by reading the newspaper or online publications that address your industry.
• You can locate them through organizations like the British Business Angels Association or Yorkshire Association of Business Angels 

Venture Capitalists, who can provide more money than Angels, can also be found through personal and professional contacts as well as through social networks like LinkedIn.  Venture Capitalists can also easily be found through Google searches or through government run websites.

In searching for outside financing, your true task is to identify those with adequate liquid resources to provide the financing you lack, who importantly also understand your company’s business model, your objectives for your business, and your team. 

The right angel or venture capital team will bring far more than money to the table.

Pitching your business effectively . . . 

If your business is profitable, and it has more customers than it can serve with its current infrastructure, then pitching it is a relatively simple matter.  Create a series of ten slides that use a large font (24+) which describe

• the need your product meets
• the customers it serves
• the need to expand
• your plans for the future. 

Use no more than five bullet points per slide. A couple of simple charts and graphs may be used if required. Your presentation should be down-to-earth, short, clear, concise and friendly.  Your objective is not to impress anyone. It’s simply to become acquainted with them, to give them an overview of your business, and to answer any questions they may have.  Future meetings, if arranged, will allow you to drill down to the details. 

 Your business plan, which you will present them when requested, should contain all this information along with documentation of your current revenues and your plan for allocating the investment you receive.  It should also provide financial projections that indicate how you expect funding to make the business grow over what period of time. 

About the plan . . .

You will find several hundred templates for business plans online.  Writing one, once you understand exactly how your business makes money and what it needs to do to expand, is relatively straight-forward. 

A business plan is not something you can download or afford to outsource to business consultants or those who say they will help you find financing.  What you put in your business plan is a blue print for your business, and when you take outside investment it becomes part of your agreement with your financial partner.  If you feel you need help writing your business plan, create a rough draft then work with a writer to refine it into a clean, attractive and accurate presentation of your business.

Negotiating the deal

Negotiating the deal . . .

Another excellent reason to wait until you have a product, customers and profits before you seek funding is that it will let you negotiate much more favourable terms than going to Angels or VCs while your business is still “in development”.  A business with cash flow and profits can expect to have multiple funders interested in providing support.  Furthermore, the amount of money required and the expected return on investment for funders is much easier to calculate when a business is already producing revenue. Your projected return on investment can be easily compared to those in the prevailing market, and the risk related to your investment can be effectively assessed.”

We have a third and final instalment of this article coming on how to work with your new financial partners . . . We’ll try to squeeze it in between Christmas and the New Year. In the mean time we invite your thoughts and comments!

About Doug Richard: A successful entrepreneur with 20 years’ experience in the development and leadership of technology and software ventures, Doug featured in the first two TV series of Dragon’s Den. He is the Founder and Vice-Chairman of the Cambridge Angels and Chairman of the Conservative Party Small Business Task Force. Doug’s current Venture is School for Startups