If you're asking for financial backing, be prepared for some tough questions - you're expected know your stuff. Below we’ve outlined five things to do before you begin to raise equity. Putting in due diligence now will hopefully save you time (and rejection) in the future.
1. Sell your ‘now’ and your future potential
Business owners love talking about their long-term vision, but it’s equally important to identify where you’re at right now. Investors will seek to understand your day-to-day operations. Is your business stable, looking to expand, or in rapid growth mode? Do you have established distribution channels and revenue systems? Do you have sufficient IT infrastructure to handle communication, information, and inventory? These factors may seem dull compared to your shiny big picture vision, but if you can’t meet these basic requirements investors will likely tell you to come back when you’re ready.
2. Invest in retaining human capital
Human capital is hugely valuable to any business. It’s so crucial that it could make or break your chances of securing funding. Many mergers and acquisitions between companies fail due to the threat of key employees leaving the business. Do what you can to foster staff loyalty. Invest in workplace training and employee wellbeing. If you don’t already have a strong, engaged team, this could decrease the value of your business in the eyes of a prospective investor.
3. How scalable is your business model?
Most businesses follow a more traditional one-dimensional (or pipe) structure, in which value is created and ‘pushed out’ (or sold) to consumers in a linear fashion. Platform business structures, on the other hand, enable end users to both create and consume value, and are easily scalable. “A platform is a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers,” explains Applico, a development firm. Many leading tech brands have embraced this platform in some or all areas of business including Apple, Airbnb, Uber, Facebook, and Linux.
4. Be clear on your long-term goals
It’s hard to answer questions from prospective investors if you’re not clear on the answers yourself. Investors will want to know your long-term goals for the business, as well as see that you’re serious about its success. Are you putting your all into the business? Are you in it for the long-haul or do you already have a logical succession or exit plan in place? Make sure you’re prepared to answer these big picture questions. Evidence that you’re taking your role and workload seriously will be a reassuring sign.
5. Get legal counsel
Speak with a lawyer to make sure everything is sound from a legislative perspective. The last thing you want to do is attract a potential investor only to have to backtrack due to legal difficulties. It’s also a good idea to speak with your accountant and make sure all of your tax reviews are accurate and up-to-date.
