Finding funding plays an important role in business growth and expansion.
Securing an external investor can help you achieve that growth, but you need to ensure your business is attractive to those with money to invest in scalable products and services.
This guide outlines some of the key steps you can consider taking to attract potential investors to your business.
Ways to attract investors
The key to attracting investors is targeting those likely to be interested in the product and service you provide.
It’s a good idea to research potential investors in order to understand their background and which businesses they’ve previously invested in to ensure they are a good match.
Knowing the criteria they use when making investment decisions can also be a good idea.
Investors have various reasons for why they provide funding and varying expectations for their involvement in a business.
The type of investor will often dictate whether they suit your business.
For example, angel investor network and angel capital association (ACA) angel investors typically back early-stage local businesses, whereas venture capitalists look for firms with a track record of success and potential for rapid growth.
Investors can be hard to track down but finding them and building relationships is important.
Many investors only back businesses they have discovered via personal referrals, so build connections with people who can do that for you.
Ask other entrepreneurs and advisers, such as accountants and lawyers, if they can make introductions, and check if your contacts on networking sites such as LinkedIn have valuable connections.
Keep your emails to investors concise and avoid sending the same standard message to each investor.
It can be a good idea to make any emails tailor-made and show that you’ve done your homework.
A strong business plan is often a crucial requirement for getting investment as it will help an investor to decide whether to fund a business.
The plan could include the following sections:
It’s a good idea to include a detailed cash flow forecast that estimates the money you expect to bring in and pay out over time.
If an investor invites you to pitch, a pitch deck is key to winning investment.
The deck is essentially a shortened version of your business plan as a slide presentation that concisely communicates information such as:
The deck needs to be clear and compelling to excite and engage the investor about your business.
Investors may expect to see a passionate and determined management team with the skills and experience to make the business a success.
If your team lacks some of the necessary skills and experience, it might be worth addressing before pitching to investors.
This might require recruiting new people as paid employees or finding external advisers and mentors with a relevant background.
You need to convey to an investor what makes your product or service stand out and demonstrate the problem you are solving or the need you are meeting.
It might not be entirely new, but investors will want to know how your product or service is better than those of your competitors.
Investors need to know that there is a big enough market for your offering and that your business has strong potential.
To demonstrate this you have many market research options, including:
Investors will want to know how your business will make money, and how and when they will make a return on their investment.
They have to understand your growth potential and how you will reach profitability and beyond.
You’ll need a cash flow forecast, a profit and loss statement, and a balance sheet.
It’s not just about numbers on a spreadsheet; investors also need to understand the assumptions behind your projections.
Using private credit to finance a project has many advantages including speed, confidentiality and certainty – features that are not as common in other forms of funding, including traditional bank loans, or public capital raisings.
By Jacquelene Pearson*
Private investors, whether major corporates, such as hedge or pension funds, family offices or high-net-worth individuals, are looking for opportunities that are flexible, innovative, reward varying levels of risk with a combination of income and yield, and, as the name suggests, are private.
Private investors or lenders are increasingly willing to provide credit to some of the world’s largest projects – across infrastructure, resources, energy, food production, technology, property, healthcare, education – you name it, and across borders.
What exactly is private credit and what are its advantages?
What is private credit?
The most common form of traditional private debt is the corporate bond or debenture. A company wishing to raise funds would issue debt, in the form of a debenture or bond, to willing investors in return for regular income (interest) payments and the promise to return the original capital investment at a designated maturity date. The higher the level of risk, the higher the investor’s expectation that their regular income payments would be at a more attractive rate than what’s on offer from, for instance, a bank term deposit.
The issuer of the bond or debenture had the use of the capital invested for the duration of the investment period but must have had the cashflow to manage the regular interest payments and a timeframe for completion of their project that ensured the return of capital to investors at the maturity of the bond or debenture.
Within the constantly evolving world of global finances, the definition of private credit is expanding. The best definition is offered by the International Monetary Fund (IMF): “specialized non-bank financial institutions such as investment funds lend to corporate borrowers”.
The IMF says the global private credit market topped $2.1 trillion globally last year in assets and committed capital. About three-quarters of this was in the United States.
According to the IMF, “This market emerged about three decades ago as a financing source for companies too large or risky for commercial banks and too small to raise debt in public markets. In the past few years, it has grown rapidly as features such as speed, flexibility, and attentiveness have proved valuable to borrowers. Institutional investors such as pension funds and insurance companies have eagerly invested in funds that, though illiquid, offered higher returns and less volatility.
JPMorgan argues that the IMF may be underestimating the true size of the industry, the bank estimates the size of the global credit market at $3.14 trillion.
Advantages
The growth in the availability of private credit gives private companies greater access to funding, particularly for large-scale and cross-border projects. Private credit providers, including Acuity Funding, are able to offer more flexible terms than conventional banks, and can structure of tailor a funding package to the needs of the borrower.
Lending periods, caveats and contract conditions can be varied for the specific circumstances of each borrower and processing times can be fast tracked.
Private credit also has advantages for investors including the opportunity to diversify away from more traditional asset classes, and higher yields than many mainstream investments. This means growing investor demand for private credit opportunities and that is good news for borrowers as more funds are available for projects.
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