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Five things investors want to know before signing a deal

26th May, 2017

Fundraising is not for the meek, as most entrepreneurs who’ve had to source for capital from external sources will tell you. You have to sell your idea with conviction and know the boxes every investor wants to tick before they hand over their money or give you their time.

No matter how approachable and easy investors may appear in social settings, when it comes to discussions involving their money, most are skeptical, thorough and diligent. But capital or business mentorship should not stand between you and your dream. Here are the five things a potential investor in your business would need to know.

Competent executor

An investor’s first concern is if you’re the right person to take the business where it needs to go.

When deciding to invest in a business, investors are often uninterested in its day-to-day operations. After all, they come in to help streamline and grow an enterprise beyond expectations. So they look to invest in people that they believe can implement the necessary changes that are agreed on to move the business forward.

Investors hope to partner with someone who has the potential to grow and is not dependent on them to do all the heavy lifting. The relationship works best when an investor feels the entrepreneur is driven and determined to push hard, and is not planning to sit back simply because there is now an investor.

You can sometimes make up for any gaps in your capabilities by having a team that’s more skilled at what an investor is looking for. For instance, if a business you founded is in the technology field but you lack the necessary technical expertise, a board or directors with these skills can make up for the shortfall.

However, keep in mind that these are not people you can hire at the last minute. A team’s chemistry is critical to the investment decision, and it’s not something that can be faked or forged in a matter of days.

Return on investment

A return on investment (ROI) is the first and last thing an investor will think about. The fact that he or she bought into your business because they liked your idea or believed in your potential should not be confused with the fact that they expect profits.

Investors are not in the habit of making donations to businesses; they expect to grow their earnings following their involvement. They want to be convinced that their leap of faith was a blessing in disguise, not a risk. They will want to know, for instance, if your business can grow by acquiring new distribution routes or increasing sales organically from one location.

Unique factor

Your business should stand out from the crowd. Today, investors have to sift through a lot of clutter when looking for the next venture to dip their hand into.

Business owners should be driven by the urge to be different from their competitors. Having a product, service or brand that has a unique factor ensures that it is marketable.

If you are offering a good or service that’s common, you need to identify what differentiates you in the market beyond what you’re selling. Is your customer service above standard? Do you deliver faster than anyone else? Are your staff well trained? Do you go beyond your customers’ needs? Back any claims you make with data or demonstrable market feedback.

Willing to do things differently

Seeking assistance from an investor means that you will be bringing someone else to the table to provide the missing link and elevate your business to the next level. Bringing on this kind of partner will require you to be open minded and receptive to criticism and compromise.

Fortunately, inviting an investor into your business already reflects a level of maturity and readiness to welcome new insights and ideas geared towards bigger profits.

Welcoming an investor’s ideas may mean that you’ll need to incorporate business models and processes you hadn’t anticipated. However, it’s important to remember that the growth of your business will be determined by how much you put into it along the way – change is part of this investment.

Financial management

Getting an investor means you are accountable for any decisions around the revenue received. You’ll need to incorporate various financial management mechanisms to ensure the capital injected is handled well.

Failing to do this has brought down many businesses – you can’t handle the money like you do your personal income, or use mental math as an accounting system. You’ll need to follow up on your financials diligently.

Have frequent audits done to guarantee accountability and transparency between you and your investor. Consult financial advisors and business executives to get a picture of the systems that will best protect your revenue.

Article first appeared in the Standard newspaper


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