Preparing for Investment

Author – Drew O’Sullivan

There are a number of steps SMEs and start-ups must take before they approach either a venture capital firm or angel investor. They need to focus on five key areas if they are to be successful in receiving investment.

These include:

  • developing a business plan
  • qualifying the investor
  • understanding investors’ expectations of returns
  • understanding term sheet expectations
  • reaching investor readiness levels

Your business plan is your opportunity to present your investment case to the investor.

Investors want to see that their investment will multiply in value, and your business plan is the opportunity to demonstrate this.

The document itself can be brief, but it must clearly outline the assumptions  underpinning financial forecast – in particular, the top line revenue growth. Many plans are far too wordy while the key assumptions underpinning the financial forecast are often hidden from view.

Most investors will engage initially with the entrepreneur via a good business plan and solid financial model. They need to see numbers.

Investors want to know the size of the market, its value, and the potential unit economics relation to pricing, revenue and profitability per customer.

They will want to know how many customers the company will need to boost its valuation, how much you need to raise and what you can achieve with that. The business plan gives an entrepreneur the ability to understand their business in detail.

Should investors get to diligence stage, providing that detail can be invaluable for the entrepreneur in concluding the deal.

The good news is that there are myriad resources – in Ireland and online – to help companies to prepare for equity investment.

These include other entrepreneurs, who have taken the same path themselves, government agencies like Enterprise Ireland and InterTradeIreland, local Business Innovation Centres and the development programmes run by incubation centres.