01 March 2018

What do investors look for in a small business?

At some stage you may need to attract external funding to grow your business. This could be through a business bank loan, crowdfunding, accelerators, angel investors or venture capital, among other options. But what do outside investors look for and how can you attract the right partners?

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  1. The UK Business Angels Association (UKBAA) believe the key thing investors look at is the three Ps: the people, their passion and their perseverance. The UKBAA says investors want to make sure they can work alongside you and this will be partly based on a “gut” feel. As well as researching you and your team by seeking references, doing credit checks and looking through social media to see what they can uncover, investors will also consider how the management team works together - how long have you worked together and whether you have worked together previously, for example.
  1. Oliver Jones, head of growth at Angel Investment Network, says investors look at the market opportunity, for something that validates the potential of the idea - customers, page views or awards, for example - and whether the idea gives a real solution to a real problem in a real market. In his article, How do investors evaluate start-up pitches?, he puts the team as the number one consideration. “It is the people behind a company led by the founders and validated by their advisory board that will optimise its chances of success. If the founders are relentlessly resourceful they will find the iteration that makes the company a winner,” he says.
  1. New York Times best-selling author Neil Patel owns a digital Marketing agency. Having launched several businesses and sought investor funding, Patel gives this advice in his online blog: “When pitching to investors, you need to provide solid data. Investors care about what you’ve already accomplished and how that can make them profit in the future. Investors want to hear the reasoning behind your numbers. Don’t just say you’re acquiring new customers every month, say exactly how many. It doesn’t matter if you’re attracting 10 or 10,000, the fact that you’re giving real data shows you’re transparent.”
  1. Sequoia is a seed investment company who mark themselves out as the first investor in Google, Yahoo!, LinkedIn, YouTube and WhatsApp. It has also worked with Dropbox, Airbnb and Stripe. Aaref Hilaly, a partner and founder of Sequioa, shares tips on the company website about how to present to potential investors. Hilaly says it is wrong to assume that a 60-minute meeting with an investor equals 60 minutes attention. He says: “A successful entrepreneur will use the first five minutes to earn the investor’s attention for the next 15 minutes, which in turn will interest the investor enough to listen for another 30 minutes.” In addition, businesses should aim to get through their pitch in 20 minutes to leave time for discussion afterwards. ” It’s true you need to brief the investor up front on what you are doing. But the quicker you can get through that to a two-way dialogue, the more meaningful the exchange will be for both sides,” he says.
  1. Martin Zwilling, founder and CEO of Startup Professionals, a company that provides services to start up businesses says when making a pitch to potential investors the top person should do the talking. “Investors want to see and hear the top guy - typically the founder or CEO. They will be judging his aptitude, his character and his passion. Don’t forget to practice, practice, practice. Just because you have given a thousand pitches in your life, don’t assume you can finesse this one by reading the bullet points in real time from the slides your team put together for you. You need to be totally familiar and comfortable with your pitch to give it effectively.”
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