How to Prepare for the Investment Process

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Taking investment is probably one of the most significant steps in any business owners journey – it’s a huge decision to take someone else’s money to help grow and in turn offer them a stake in your business.

Seeking investment is a process that requires a bit of consideration and planning before diving in – if you are better prepared you’ll likely get a better outcome. This article will go through a few strategies to help you on your way to building an attractive proposition for an investor and getting the investment you want.

Are we ready for investment?

If you decide it’s time to seek investment it usually means the business wants to do something out of the ordinary, something new and exciting. Whether this be creating a new product, pivoting the business, hiring extra people or opening up in a new location – these are all good reasons to look for investment.

Whilst taking investment is a common event for businesses who aspire to grow and innovate quickly – it’s important to consider your other options first as investment does come with risks and responsibilities. Perhaps a loan might work or releasing capital from elsewhere – it’s definitely worth mapping your options out beforehand so that you understand the risk versus reward. You can read more about business planning and modelling in our article here.

Investment often suits bigger, bolder projects, not the ordinary; so think creating a new product not just wanting to redecorate the office. Investors like exciting projects that have scalability and will give them good returns. So that more attractive your story, the better investment outcome.

What will investment mean to our business?

Getting an investor onboard might be the first time you’ve had an external input into our business. Investors will care about your business strategy both short and long term, they will care about how your teams are structured, so it’s important your operations team are prepared for this. An investor is an extra pair of eyes overseeing the business and an extra relationship that needs to be carefully managed.

One thing that an investor will want to see is an exit strategy, so it’s good to have this ready before seeking investment as you’ll be more attractive. We have a valuation modelling template on our resources hub that might help with creating your exit strategy.

One thing that’s really important to understand – is why is the investor investing in our business? What will they expect and what do they want in way of return. Qualify these questions in your pitching process – if you can demonstrate you can meet these expectations, you will be better prepared to actually deliver them.

However, the simple answer to why an investor invests is that they want returns, growth, more money back! So there is pressure for the business to perform because before it can be profitable, the investor will need their money back.

Rounds of investment

Which round or type of investment you’re looking for depends on the stage or valuation of your business. For example, if you are a pure start-up, with just an idea, pre-revenue and a slide deck you’ll be in a pre-seed round and need to find an Angel Investor.

This money will help to prove your idea works, the typical investment at this stage would be £50K – £100K and the business valuation would be around £300K

Once you’ve started to prove your business idea, you might have a few paying customers but your product / business will still be at MVP level. Your next objective will be prove the model further, get more customers and grow – at this stage you should aim to get an A Round Investment.

Businesses seeking A round investment would typically have £1million of recurring revenue; regular money coming into the business, ideally retained work or license fees. At this point, business owners will have a good understanding of the moving parts of the model but you want to move to profitability. The typical valuation of these businesses would be £1- 1.5 million and expect a £0.5million raise.

Rounds B/C are for mature businesses, who often own a marketplace. They are ready to explode and achieve high growth, quickly. The raises will be in the 10’s of millions.

Preparing your investment materials

It is absolutely essential to understand your story, what is your business and what problem is it trying to solve? Having a clear narrative on who you are and what you want to achieve is key to a successful investment pitch and one thing investors will really be looking for.

Demonstrate that you understand your market and audience well and show how your product /business can fit directly into that. You should also be prepared to show your historical financials and also have a financial plan to present.

Ideally, your story and key business points will be able to fit on a one-pager, along with key financials that can be emailed out to investors as a teaser. If you get engagement after that point, a full slide deck will be needed to support the next stage in your investment journey. We have a article on navigating the investor marketplace – which will help you in the next phase. Good luck!

How do you feel about seeking investment, do you feel ready? Contact Practical CFO, we can offer help and advice for businesses looking for funding.

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