Surely there’s gold in them thar hills? East London meets the City so there must be heaps of cash flying around? Well yes there is ! Venture Capital, Angel investment, CrowdFunding...if you’ve got a great technology business, then the men with the cash will invest. But is it that easy?Quite frankly, No !
To lay your paws on investment is still a traumatic experience. It’s not the kind of trauma you’d get trawling the high street banks and being put through the ringer there. The relentless form filling, call centres the other end of the Country and a bank manager who looks like he’s just left Sixth Form. This is a more sophisticated process but nevertheless traumatic. But it’s a good trauma. It’s one that will make or break your entrepreneurial spirit. It’s necessary and in the end it’s valuable.We’ve all been through some due diligence in the past. Finance checks, double credit checks, check checks, DNA, urine, blood sampling, triple checks, MI6 interrogations and Torquemada’s thumbscrews. And if you haven’t you should. It’s painful, its harsh but it’s realistic and more important makes sure you know your own ear from your elbow of your own business. You don’t want to sit there in-front of an investor without knowing ALL the answers, do you?
Sitting next to me in a coffee shop in Shoreditch typing this, there’s a bunch of scruffy boffin types (who probably went to school with the Bank Manager I referred to earlier) going through a term sheet prior to investment for thier new flange-sprocket widget saving mobile phone API ((WTF??). This bunch of 20-something’s sounded like they we’re just about to get their hands on £300,000 worth of investment. They’ve been on an “Accelerator” programme and were now ready for their pitch to the money men.This is the way forward. Getting yourself ready for fundraising round is more than just form filling. It’s all about presentation.
Remember this rule, the Rule of seven.... “Piss-Poor Preparation Produces Piss Poor Presentations”
Know your numbers, know the ins-and-outs of a ducks arse about your business and make sure the guy you pitch to likes you and your team. Within 20 seconds of standing up and doing your pitch, they’d have made their mind up about you......be a CEO and surround yourself with boffins that know more than you and will coach you to make you look good !So what will investors be looking for?....have a look at this long, boring and probably rather daunting list........
· RISK vs. REWARDS
o Have you evaluated the total risk of loss on this investment, including the liability that may be attached when your initial investment is depleted? Could you be legally bound to put up more money in the future, and if so, have you factored this additional investment in your total outlay?
o If the project involves development of a new product, process or other technical innovation, is there independent confirmation that it works?
o Have all the regulatory requirements have been met?
o If the business is operating at the moment is it losing money? If so, have you accounted for the burn rate?
o I know how much my investment will be diluted as a result of the founders getting an interest for their sweat equity.
o Have the entrepreneurs invested an appropriate amount of cash in the project to ensure that there is an equal footing from your investment?
o Do you know the level of involvement that is expected from you? If so, have you factored this in with your current schedule and is this feasible for you?
o If you intend to be on the board of directors, would you be entitled to representation?
o Do you fully understand the legal structure of the investment?
o Will some or all of your investment be secured by assets in the company?
o Is there adequate insurance in place for assets, key personnel and directors?
o Are all tax filings (income tax, payroll, etc.) Up to date and have these filings and related assessments been reviewed?
o If the investment proposal is for an established trading company and is VAT registered, have you requested to look at all of the quarterly VAT returns filed, so you are not retrospectively liable?
· EVALUATING THE PEOPLE
o Do you know and trust the people making pitch to you. If not, perhaps confirming the entrepreneur’s reputation with credible third parties may be a wise precaution to take.
o Have you carried out history checks on the key implementers of the business plan?
o If you are investing in an established trading business have you requested a copy of the key terms of employment, contractual and salary agreements for the key personnel?
o Checks on current stakeholders, officers and directors and key professionals to the project?
o Has your Solicitor conducted corporate and personal searches on those involved in the opportunity?
· OPPORTUNITY EVALUATION
o Have you calculated your probable return of investment (ROI)?
o How long has this opportunity been on the market?
o What is the payback period for the investment?
o Have you discussed the entrepreneur’s investment proposal with other angel investors?
o Have you discussed the concept with other Angel Investors?
o Is the financial plan, assumptions and turnover projections reasonable, factoring in Gross profit and Net Profit? If not or you are unsure, Venture Giant will always recommend the plan been reviewed by independent professional advisors.
o Have you looked over all of the expenses, including breaking down labour costs?
o Is the entrepreneur’s marketing plan realistic? Have you seen it? If not, why?
o Do you understand when the business is expected to become profitable?
o Have you calculated when you would be able to expect return on investment in interest or dividends?
· How and when will you get your capital back?
· If you are purchasing equity, what type are you purchasing (common shares, preferred shares) and have you spoken with your Accountant/Tax advisor in terms of the potential Tax benefits/downfalls?
· Are there warrants or share options attached?
· Are you purchasing debt? If so, is it classed as subordinate debt or Convertible debt?
And this just touches the surface.....I’ve seen “Deal Bibles” of 20+ rammed solid A4 lever arch folders that address Due Diligence. Get this wrong and good-bye investment or worst still, 18 months down the line, good-bye cool business!!A big cry-out here from me... Get in touch and GET SOME HELP....you CAN’T do it on your own! We caring, sharing professionals can help you and make a big difference.
One of our accelerator boot camps cover all of this stuff and more...HR, Marketing, Strategic & ops planning nyada nyada nyada.... (NB Other Mentors, coaches, advisors, counsellors are of course available!)
Is it worth it? Yep and those young-bloods from the coffee shop will by the time I’ve pressed the “publish” button, have 300,000 very good reasons to agree with me!