If you need business funds, what do you need to do to attract an investor to your project and persuade them that your business is worth investing in? Angel investors see various proposals some of which are excellent and some simply pathetic. The seven areas in the financial proposal that need the closest scrutiny and make or break the document are listed below.
Market research. If you have claimed, for example, that your company is currently turning over £500,000 per annum and will turn over £2m next year and £12m the year after you need to show in detail the market research that you have done to support this proposition. This is especially so with early stage companies where ‘blue skies tomorrow’ claims are often no more than assumptions. Avoid this pitfall by always including supporting data and detailed research arranged logically and cogently.
Intellectual property. Make sure that your IP is protected; it can often add a further 20% to 30% on a corporate valuation. If you can get a patent on a product then always apply for one and protect with copyright if this is an option that is also available to you. If your system or idea can be easily copied then investors are unlikely to put their hands in their pockets.
Financials. Well kept and up to date books are a must. Initially, monthly management reports will be essential until the investor is happy that you are meeting or exceeding sales projections. If you are unable to provide these regularly and on time you may well have created circumstances that will see your application founder. . Similarly, it is essential to produce well thought through forecasts of cash requirements and profitability; showing when funds will be required and where they will be spent together with the expected returns. A single page of figures will rarely get you to first base.
Product test. In start up and early stage businesses, especially where the product is manufactured or is a service involving say software, it is imperative to show that the product or service has been tested. Evidence of field trials should be included and highlighted. Good, proven testing will build confidence in any investor.
Directors. A strong management team adds value to the project and experience and backgrounds will be scrutinised by investors since these are the people that will handle their money. In writing CVs to include in the project document don’t let modesty hinder your words but on the other hand never include fiction. Always bear in mind that if you lack key personnel and investor may well be able to provide it.
Personal investment. Bringing your product to the point in time where you are asking for outside funding will have involved the investment of funds from family, friends and your own resources. Show the total amount and how and where it has been used. If you have committed sums of money as well as time it always inspires confidence.
Use of investment. Know exactly how much you need and where it will be spent. It is not uncommon for an investor to make available a line of credit with a bank or finance house. How much you will draw down against it and when you will do it must be described. The absolute no-no is to use investment to refund what you have committed or to inflate your earnings.
These seven points are by no means a comprehensive list but they cover some of the main topics that are often not as well structured as they might be. When Capital Brokers groom applicants for funding these are often the areas which need detailed attention. We are living in risk-averse times and these are areas that will indicate whether a business will survive or fail. If you have a financial proposal going forward and want an opinion on it or need help in its structure we will be delighted to constructively critique it and we make no charge for this service.
