7 ways to attract investors to your growth business

Jim Cockburn, who has personally invested in over 30 businesses, shares his advice on the best ways to attract investors to your business

Whether you’re starting up a business or trying to take your existing one to the next level, getting the buy-in from the right investor can be game changing. All of us want to attract investors. But finding one in the first place can have its challenges.

#1 – Demonstrate your long-term commitment

For someone to take the step to invest in your business, you first need to demonstrate your commitment and passion for its future. As well as showing your desire to be there for the long run, you need to prove that you’ve made sacrifices and are willing to make further sacrifices if you want to attract investors. That means seeing it as much more than just a job. Investors want to see that your business is a way of life and that its success means something to you from both an emotional and commercial point of view.

>See also: Bootstrap your business and then find yourself an investor

#2 – Don’t take your own money off the table

One way to really show your commitment is by leaving your own money in the business. The quickest way to turn off a potential investor is to say that you want to take money out of the business for personal use if they invest. In fact, I once pulled out of an investment at the last minute because the owner announced that he wanted to take most of it out as a bonus.

It’s also concerning as a potential investor when the principal owner wants a hefty salary from the offset. At this stage, if you’re a start-up or scaling an existing business, new money should only really be used for investment into growing the business. Demonstrate your commitment by taking a modest salary initially and perhaps take money out of the business at a later date when you’ve hit your agreed financial targets.

#3 – Get to know the numbers

One of the biggest mistakes business owners make when trying to attract investors is being unsure about their own numbers. Your initial pitch could be absolutely spot-on. But if you’re unable to differentiate between gross profit and net profit – or you can’t account for all of your costs when questioned, you’ll undoubtedly spook your investor. If finance isn’t your strong point, get professional advice early on or undergo training to help with your understanding. That way, you can communicate confidently when your financials are inevitably scrutinised.

‘You might have to kiss a few frogs before finding the right fit’

#4 – Don’t overvalue the business

A frequent problem I come across when searching for potential investments, is that owners tend to overvalue their businesses. Often, people work back from how much they want it to be worth rather than being realistic and looking at the business in its current state with a critical eye.

In my experience, it’s crucial to be cautious with your valuations so you don’t get caught out later down the line. You can of course have targets and ambitions but stay within realistic parameters. That way, you won’t disappoint yourself or put investors off when things don’t materialise in the way you had hoped. Remember, something is only worth what somebody is willing to pay for it. So yes, have your dreams but stay grounded day-to-day.

>See also: 7 investor personas: how start-ups can understand their motivations

#5 – Be clear about shares

If you’re planning to issue shares and sell them to investors, there are some important things to consider. When offering shares to third parties, my advice would be to be careful, realistic and consider your reasons for doing so. Ask yourself what value these shareholders are likely to bring. Do they want to be a sleeping partner? Or will they want a more active role in the business? Why are you offering shares in the first place? Is it just to get the finance? If so, is there another way to secure the money that might suit you and your business better?

If a shareholder can really add value through additional support services like finance, HR, business development or marketing, it’s likely they will want a significant share. So as a business owner, you need to weigh up what this investor has to offer and how you think you could best make use of their expertise.

#6 – Always be transparent

Honesty and integrity are important characteristics in the business world. And transparency during the investor pitch process will be key to securing a deal. Keep things simple but clear. For example, when it comes to your business finances, three things really matter to an investor – how much money you have in the bank, how much you are owed, and how much you owe. Cash and cash flow are king so don’t kid yourself about how liquid you are at any given time. Be careful not to make the future look too bright if you want to attract investors – it’s always better to underestimate than overestimate.

#7 – Finally, have patience

Securing an investor can be game changing but it isn’t an easy process and it will take time. Have patience with yourself and the process. You might have to kiss a few frogs before finding the right fit but you’ll know it when you find the right person. Go with your instincts and trust your gut – if a deal doesn’t feel right for you and your business aspirations, it probably isn’t.

Jim Cockburn is founder and chairperson at the Martin James Network, which employs over 1,200 staff worldwide and last year turned over in excess of £100m

Further reading

Start-up valuation – an investor guide to valuing a start-up

Jim Cockburn

Jim Cockburn, founder and chairman of the Martin James Network.