Rules of investment

Here's my advice for telling potential investors what they really want to hear.

Here’s my advice for telling potential investors what they really want to hear.

Here’s my advice for telling potential investors what they really want to hear.

This is all the more important at a time when the need for new investment is at its highest due to tough markets and a lack of bank finance. It’s not about misrepresenting the facts, just presenting them in the right way.

Make sure that your product or services can demonstrate cost savings wherever possible. A number of key messages are coming across, one of which is aggregated buying, so where possible try to tie in more than one department or local authority so that you can offer bigger discounts on larger deals.

It makes a difference if you try to present your company as being in overseas growth markets, such as China and India. A recent survey from HSBC revealed that just one in seven businesses in the UK saw Asian countries as presenting an opportunity for further growth. That demonstrates a worrying lack of imagination and ambition among our entrepreneurs, especially when you consider that the demand for British goods rose by almost 50 per cent between February 2009 and the same month of 2010. Even if your customers are primarily UK-centric, products need to be seen as innovative enough to tap into what are considered to be new markets or new routes to market.

Think about what the internet can do for your business and, if you don’t have the in-house expertise, hire experts in to help you. Investors view the correct use of the internet as a key component for successful business in the future.

They also like to hear how you can maximise revenue from existing customers and your user base. Try to demonstrate that your base overheads are covered more or less from this income source and hence the need for new client wins is not vital for the company’s survival. This whole area is about your business model and my mantra of being innovative about how you make more sales to existing customers.

Incidentally, a key component here can be product development, so don’t cut back in this area unless it’s really necessary.

Technology can enhance a company’s operations from top to bottom, making processes more efficient and lowering your cost base. Investors want to see a business that has the ability to grow its profits rapidly on a relatively small increase in sales. In other words, the gearing effect of your business is important for investors to get their returns. 

If you are in a tough or fairly static market, see if you can demonstrate a plausible acquisition strategy that will allow you to cut costs by way of rationalisation. In this way, you can turn a disadvantage (tough and static market growth) into an advantage by arguing that companies in your sector are having a tough time and can therefore be bought more cheaply. 

The management team must be able to demonstrate a clear grasp of the details of the business. In these times, this means that everyone from the MD through to the sales director knows the numbers inside and out. It is not good enough to rely purely on the finance director to provide the detailed information to back up your arguments on pricing or sales by particular category or country.

Show yourselves to be innovators and to be flexible. Give clear case studies of where you, the management team, have made improvements to the business by changing existing ways of doing things. Not only are investors looking for hard-nosed decision-makers, but also management teams that are innovative and flexible.

Seriously think through what you need your investment for and demonstrate financially what this will do for the company’s bottom line.

Finance for extra marketing spend is fine, but try to give examples to back up your assessment that this will ultimately lead to extra sales growth. If you are seeking finance for new product development, once again be as specific as you can on the addressable market and what percentage of it you can obtain and why. 

Above all, try to show how your potential investors can achieve a real profit on their investment, and emphasise this throughout your presentation.

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