How do investors assess an investment opportunity?

How do investors assess an investment opportunity?

This depends on the type of investor. Ask a VC and they’ll say ‘management team, management team, management team!’ A business angel may take more interest in the type of business, as they may have experience and contacts that could strengthen the management team. Nevertheless, there are certain key components that all investors will want to see:

The business plan

This is your investment proposal on paper. It is what will sell you when you’re not there. There is more on the secrets of a good business plan in our library but for now, one very good piece of advice is to put yourself in the shoes of the investor when writing your plan.

If you had £100k and someone you hadn’t met before said ‘lend it to me and I’ll give you a lot more back in a few years time’, what would make you believe them?

In your plan you need to clearly communicate:

  • how much money you need
  • why your business is going to succeed with that money and
  • how the investor is going to realise the return on their investment.

You may have a great idea but that’s not enough. Flying carpets are a great idea but most people use roads and trains because they prefer a planned route and a good chance of getting there.

The financial projections

Your plan should also include clear and professionally constructed financial projections. They should include cash flow, balance sheet and profit & loss forecast for at least three years ahead. Make sure that your plans are conservative, achievable, believable and backed up by evidence wherever possible. Be clear about your assumptions and do some “what ifs” – what would happen if your sales were only 50% of the figures you forecast, or if there was a six month delay in new sales coming on stream.

If you’re considering anything other than a very small round of funding it’s worth asking an accountant to help you with your projections (and remember: the guy to whom you give a shoe box full of receipts every year may not have experience in producing financial plans for raising finance). Our members include a wide range of experienced specialists who can help you with this.

The management team

The management team is regularly quoted as the most critical factor in the success of a business and with good reason. But this doesn’t mean you need to be called Branson to get money.

A larger business management team may have the managing director supported by operations, finance, sales & marketing and possibly human resources and development.

As a lonely business owner or small management team you don’t need to recruit to fill all those positions, but you do need to show how you’ll cover them – either personally or by outsourcing to support organisations. You and your team will be judged on previous experience, capability and sector knowledge as well as your personal and financial commitment.

Remember that enthusiasm from a business owner is important, but alone it will not secure investment. You wouldn’t let an amateur dentist loose on your ivories just because he was really enthusiastic. Read more about investors here