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Ten tips to attract investors for your business

I seem to find myself speaking to a lot of corporate finance people at the moment, and getting mixed messages about if and how it is possible to raise money for business ventures.

Based on these dealings, and reading up on the subject in general, it seems there are some clear criteria that most active investors use when deciding who to invest in:

1.   management with passion and commitments to the business
2.   management with a track record of success in business
3.   management willing to risk their own money on the venture
4.   a scalable business
5.   businesses that offer cost savings to their customers
6.   businesses making good use of IT and other technologies
7.   a well-differentiated business, with innovative products/services
8.   a projection showing a 15%+ rate of return
9.   a cash-flow positive, predictable income stream
10. a clear exit plan

Or course, different types of investors will emphasise different criteria: e.g. a venture capitalist may be very regimented and focused on the numbers, whereas a private business angel is much more likely to be influenced by personal chemistry with the owners/management team.

Let me know if you agree, or if you can add anything to this list.

3 Responses to “Ten tips to attract investors for your business”

  1. Steve Mills says:

    I totally agree with you Andrew. I know one of the things that the dragons see as important is ‘the person’. They do, or do not feel this person is the ‘right type of person to invest in’.

  2. Andy Hunt says:

    Being an entrepreneur requires a certain amount of drive and enthusiasm. If we didn’t believe in ourselves and our businesses, we would still be working for someone else.

  3. I agree with the above list in general but wouldn’t put the passion and commitment first nor would I put the own money aspect that high – I have known plenty of passionate and committed fools who endlessly plough more of their own and others money into hopeless ventures.

    I would add the following points based upon my own entrepreneurial experience:

    1. High margins – it’s much easier to generate strong cashflow with higher margins and you have more of a cushion in bad times.
    2. Niche businesses usually drive higher margins and are easier to protect and differentiate
    3. Businesses with high entry costs (either in terms of investment, access to know-how or technology) are easier to protect and also drive higher margins
    4. High customer switching costs will make customer defection harder
    5. Addressing markets in their growth phase will drive future volumes
    6. Providing solutions that are based upon knowledge and expertise beyond that which customers can hope to acquire

    There are a lot more but over and above all, remember the classic work of Michael Porter in the early ’80s that showed that not all markets were created equal in their ability to create and sustain profitability.

    And if you hope to exit your business, don’t forget the most critical aspect – do make sure that when the time comes to sell you have made yourself completely dispensable.

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