Entrepreneurs and small business owners should speak in the language of risk and reward when talking to potential investors, according to Business Growth Fund (BGF) investor Chris Hodges.
Speaking at Results International event Next Gen: Future Thinking at the London Film Museum in London, Hodges told delegates there are “three zones of interest” that investors look at when sizing up potential investments.
“They are: what does the company need in terms of capital, how ambitious is the team and are the shareholders aligned in the same direction?” he said. “I think those three things need to be in place for a successful growth capital raise.”
Hodges also sounded a note of caution to ambitious entrepreneurs, saying that “where entrepreneurs see opportunity investors see risk”.
“When communicating with an investor, it’s really important to understand where they’re coming from; also to position the opportunity in terms of return when communicating the overall story,” he continued.
“That comes back to being a good story teller and using those two parameters of risk and return telling that story.”
Hodges has recently been involved in backing Four Communications and 3sun Group and sits on the board of both companies.
He went on to say that as a fundraising company it’s “not just about going to private equity”.
“Equity’s expensive, and as a company matures the ability to raise debt increases,” he explained. “So one of the skills of raising growth capital is to raise an optimum blend of debt and equity.
“Debt is very much cheaper than equity but it comes with more constraint – things like covenants for example. So it’s all about getting the minimum cost for the maximum return.”