It happens often…
Posted on October 30th, 2012 by Chrissie
Guest blog post by Christian Lister, The SME Ambassador
seeking private equity arrangements, turnaround investments or venture capital.
It happens ofte
People and companies send me business plans ultimately seeking private equity arrangements, turnaround investments or venture capital.
I don’t *do* any of the above, but I *do* know a vast amount of people and companies that make a living from small business investments.
I’ve never turned down a request to look at a business plan but I have responded with observations which may save them time later on if they have a successful introduction.
My observations are generally based on experience and a good dose of common sense.
For example, if you’re seeking:
Turnaround investment: the equity partner will look for assets (buildings, plant/machinery etc) that the company owns, if the company has no assets the deal is (its already risky) riskier. They will expect a significant share stake. Be honest about the companies position, be honest about head-winds the company (or indeed the industry) is facing – the investors are about to become your business partners. Remember that above all else.
Growth Capital: your order book is brimming with potential income and you need to raise capital. Be honest about the companies position, be honest about head-winds the company (or indeed the industry) is facing, know everything about your competitors – the investors are about to become your business partners. Remember that above all else.
Venture Capital: you have the *next* big thing, it’s a zillion £/$ money spinner, the world won’t be able to function without it. Ok, this does happen (rarely) – the 1st question you will be asked is about the competition – never say you don’t have any – everybody does. Be honest and be realistic. Know the market, know the competitors – spend more time researching these elements (not just a quick google, bing search).
Level of investment required: apply common sense and take words offered in the last 3 examples and then apply another layer of common sense. If your business needs turnaround investment, think small and short term are beautiful. Don’t ask for £1 million over 5 years, when £500,000 over 3 years with a clear exit for you and the investor will suffice.
Investors don’t usually look beyond 5 years and a potential profitable exit. Investors are not your best friends – this is how *they* make a living and any emotional ties you have with your business, trust me, they won’t have them. Passion for your business is key, investors are investing in you as well as your business – but don’t blur the lines. It’s all about financial results and financial returns.
My final snippet of advice: if non-disclosure agreements and non-compete agreements are not offered by *anyone* during the initial outset (even if the promise of money is on the table) walk away. Protect your business.
The SME Ambassador
International Director at The Genesis Initiative. Director X-Press Legal Services. Chairman IPSA. UK affiliate, Steering Committee and Vice President of Europe at International Small Business Congress.
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