The Business Finance Guide spoke with Tim Mills, Investment Director at the Angel CoFund, to understand the essential things that businesses need to know before starting an angel investment pitch.
Mills advises that the most common pitfall that he sees of businesses seeking to raise investment is that they completely run out of time in the all-important planning phase.
He stressed this point, telling the Business Finance Guide: “By far the most important piece of advice to take on board is that you need to take the time to plan far in advance of actually starting the investment process.“
Entrepreneurs should be thinking nine to 12 months in advance of requiring their finance and should take that time to plan out what they need:
- the correct investment value,
- the profile of the ideal investor,
- the business plan and financials, and
- the pitch.
The process can take three to six months between submitting a proposal and receiving the investment, but too often entrepreneurs underestimate the challenges that could arise, and the timeframes required.
Mills also advises not to ignore seasonality when planning a pitch. He says: “Key points in the year like summer holidays, Christmas, Easter, and tax year end can affect timescales on a pitch. Trying to move the investment process forward at these sticking points in the year can be really slow.
Investors need to know exactly what it is that founders plan to do with the business, and how the investment will help achieve that.
It’s not enough to say that you’d like to enter new markets and need around a quarter of a million pounds to get there. Investors will need to know exactly what the plan will be; what has been achieved to date; what the market opportunity is; and what, specifically, you are asking investors to contribute.
Mills advises business owners to keep all information clear and concise. Most investors will look at a lot of proposals every week, and they don’t have the time to sieve through unnecessary information, so make sure the information is absolutely clear for the reader.
Mills reflects that when explaining the market potential, "too many businesses state a huge market potential, but aren’t clear on how they’ll access the market or even how the product, or service, ties into that market. That always raises alarm bells for investors.”
Most entrepreneurs are extremely passionate about what they do. It takes a separate set of skills to take a step back and view your own business plan as an outsider would do though.
In some sectors, such as deep-tech where there’s complex information required, companies need to prepare much more in terms of preparing reports and information for investors. But remember to always keep it clear and concise.
When companies overlook the preparation of reports, and are unprepared when information is requested from them, it can really slow down the investment process, according to Mills.
His second piece of advice on preparation is about knowing your ideal investor. He says: “Think about who your ideal investor would be. Who are they? What sector do they tend to invest in? Do they have specific criteria they look for when investing? Why are they the ideal investor?
Company founders tend to wear lots of hats and spread themselves thinly. One of the common pitfalls that Mills regularly sees is that as the business scales, they become too stretched and need to plug a skills gap – most commonly on the commercial side with sales, marketing, or operations that are essential to driving the desired growth.
Investor syndicates can help plug many of these skills gaps and if not, then the extended network of those investors may yield the expertise that is lacking. There are plenty of benefits of having an investor sitting on the board too, as they often share their knowledge and expertise, and can move the company forward in a strong, commercial direction.
Mills explains: “Every company’s pitch is different, but a common feature of the best pitches is when the strength of the whole team behind the business shines through. Investors spend their time on due diligence on the human resource aspect of pitches because they know that, ultimately, for an investment to pay off there needs to be a strong team of people that work together to properly execute a plan.”
You know the saying – practice makes perfect.
When you finally have the opportunity to speak with your ideal investor, you’ll want to have perfected what you’re going to say to them. So, whether it’s by running through your pitch with friends or family, or with real investors (but probably not your ideal investor), make sure that you’ve practiced your pitch over and over in advance.
You’ll learn where your weaknesses are, and you’ll inevitably receive valuable feedback too.
Mills explains that too many entrepreneurs wait too long for a response from investors in the fear of receiving a “no”. Don’t wait too long to hear back; and do push for a response and feedback from them.
Successful entrepreneur Catherine Beech for example, suggests that two to three days is the ideal amount of time to wait between your initial approach, and a follow-up call.
But don’t waste your time – if it’s looking unlikely that they’re going to invest, be ruthless and move on.
Even if you do receive a “no” you can play it to your advantage. All the best companies do this.
Don’t underestimate the value of feedback. Whether it’s a practice pitch with friends, or a real pitch with an investor, make sure to listen to feedback. Often, they provide really relevant and useful information that will help you to validate your next pitch, which could be the winning one.
Finance at every stage
Business financing is not a one-off decision, but an ongoing and evolving situation. No decision can be made in isolation to the businesses journey. Find out more about what options are suitable now and what might work at another stage.
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