The right investors could propel your small business to success. Not only do investors provide funding to accelerate growth, they also provide experience and expertise that may prove invaluable. If you’re seeking investors to grow your business then you need to prove that yours is a company worth investing in. Let’s take a look at the biggest mistakes business owners need to avoid when seeking investment.
1. Unrealistic Financial Forecasts
When you are anticipating rapid growth, potential investors will not expect your numbers to be 100% accurate. However, if your financial forecasts are wildly over-optimistic, you’ll quickly find your would-be investors running in the opposite direction.
Work with an accountant with relevant industry experience to create realistic financial forecasts that will be attractive to investors, rather than have them blacklist you as a fantasist. Make sure that your existing numbers tell a story and present investors with the facts so that they can accurately judge your potential.
2. Misjudging the Value of Your Business
Valuing your business too high or too low will turn off investors fast. After you have created realistic financial forecasts, use them to ensure that your business valuation is in the right ballpark. Again, your accountant will be able to help you with this. You can also use online tools to gain a frame of reference. Crunchbase, for example, is a site that allows you to look at the valuation that similar companies achieved at your current stage.
3. Lacking a Clear Message
Of course you need to show investors your product or service but the most important thing to sell is your vision. Don’t focus too much on the product itself and forget about the market potential. Investors only care about your product in the wider context of their potential earnings, so take them on a journey. Remember that they aren’t customers and sell them your vision for the future.
4. Hiring the Wrong Team
You’re only as strong as your weakest team member. Your business isn’t a one-man show; it’s reliant on having a motivated team who are able to think outside the box. Therefore, investors want to see that you have a strong team to support you. Furthermore, it’s also a good idea to find board advisors with relevant industry experience to provide advice and guidance when necessary in exchange for a small retainer or equity.
5. Not Knowing Your Numbers
Have you ever watched contestants on Dragons’ Den deliver an excellent pitch, only to crumble when questioned on their numbers? You need to be crystal clear on your facts and figures before speaking to investors. Use sites like Investopedia and Crowdcube to educate yourself on the appropriate terms and speak to your accountant to make sure that you know exactly how your numbers are looking before you pitch to investors.
6. Irresponsible Spending
Investors want to know that you will use their money wisely, so it’s important that you can demonstrate a track record of responsible spending and sage money management. Naturally, you must spend money in order to grow your business but it’s important to save money wherever you can rather than splashing out on flashy items you don’t really need, or going overboard with extravagant marketing campaigns.
Make sure that you have a business bank account that is totally separate from your personal one so that your investors see that you’re serious about good money management. A high quality accountant will be able to help you prepare the best possible case for your investors and present your spending in a good light.
7. Waiting Too Long to Seek Investment
Trying to raise funds from a place of desperation is not an ideal position to be in. Investors can smell desperation from a mile off and won’t hesitate to take advantage of this. As a result, you will end up with a deal that is stacked against you. Instead, seek funding when the going is good so that you’re in a position to negotiate. A willingness to walk away will always help you get a better deal, and save you some sleepless nights, too.
Summary
When seeking investment, proper preparation is key. Make sure that you get crystal clear on your numbers and are able to demonstrate that you’re good with money, otherwise investors simply won’t trust you. Hiring the right team and ensuring that the entire company is aligned with your message is important too, as you are selling a vision, not a product. Finally, seek investment when the going is good so that you can secure an arrangement that will optimise your business growth.
