05.07.2018 News

What to look for when seeking out Business Investment

It’s not exactly rocket science is it? Every business needs investment in one form or another. Whether in the guise of capital from its founding directors or partners or, indeed from an external source, businesses need money to function - to pay bills, to fund staff, to acquire stock, the reasons are well known.

The founders could - if they are in a position to do so - inject some initial capital into the business and then regard it as a directors’ loan - in effect requiring the business to pay them back at some stage in the future, either at an undefined point, or upon the crystallisation of a specific event. Equally, if they are not in a position to inject capital into the business, there are a variety of ways in which the business can attract or obtain investment.

The first and most conventional - read ‘traditional’ - way is through bank finance, either as an overdraft facility or straight loan. This presupposes that any bank will a) regard the business as ‘investable’ and b) consider the directors or founders as credit-worthy. If either of these criteria is not met, then there won’t be any investment. Simples.

The next way to finance your business is to search out an organisation that can offer public investment, either via crowdsourcing or through a business kickstarter or growth scheme. Some specific funds and government-backed schemes exist, which might fit the bill, and for which your business could be eligible. This isn’t however guaranteed, and there may be certain criteria that render this unattractive or even impossible.

The next route is via private funding, either from a business growth fund or a so-called ‘business angel’ investor. In essence, the growth fund or business angel will take a view on the feasibility of your business proposition, assessing the financial risk versus potential reward, as well as considering any potential security you may be able to offer.

The security could be a lien over stock in trade - rather like a debenture - or even bricks and mortar. Similarly, the investor or growth fund will discuss with you the way in which they will recoup their capital and the interest thereon. This could be by taking shares in the business, if it is a limited company, or maybe some other form of equity, perhaps even including voting rights at board level.

What this means, of course, is that it is especially important for you to choose the ‘right’ personality of investor. A fund or individual that you can get on with - ideally both from a pure business perspective but also on a personal level. Someone who will provide welcome support and guidance when required, but who won’t interfere or place unnecessary restrictions on your trading style or preferred business modus operandi.

These skills and characteristics should be augmented by a firm understanding of your business plan - what the business’s strategy is, what your brand represents, what your’s and their exit strategy might be and, by no means least, how their areas of expertise can dovetail with yours.

So, the message is clear - don’t just jump at the next funding opportunity that comes your way. Think strategically, assess the suitability of your suitors and, lastly, interview potential investors. They’ll respect your honesty, your integrity and - most importantly - your business acumen.