How to prepare your startup for investment

This article explores what a start-up owner needs to know to prepare their business for investment, and how to choose the right type of funding.

• Investment comes in several forms, including angel investment, crowdfunding, venture capital, grants from local authorities and support hubs, and business credit cards or loans, each suited to different types of business and stage of growth.
• Angel investors and venture capital firms take an equity stake and often an active role in the business
• While grants and local support schemes usually don’t require you to give up any ownership.
• Before approaching investors, get your business behind the scenes in order: align your messaging with your goals, update your customer personas, and make sure your financial records are accurate and up to date.
• Prepare a clear investment plan covering where your business stands now, how the money will be spent, and what returns to expect, then fine tune a 30 second elevator pitch to open the conversation.

By Hayley Campbell

Hayley Campbell, Durham Startups Solutions Advisor North Durham from TEDCO Ltd, experienced business owner specialising in practical guidance for new entrepreneurs.

All posts by Hayley

If it’s time to look for investment into your business, there are several things worth sorting out before you open yourself up to outside scrutiny. Skip this stage and you risk turning investors away rather than winning them over.

Understanding which type of investment suits your business gives you a much better chance of success, and stops you asking the wrong people for the wrong thing. Here’s what’s involved.

Types of investment available to Durham startups

Angel investors

Angel investors are wealthy individuals who invest early in start-ups in return for equity, a stake in your business. They’re often acquaintances of the founder, helping the business get off the ground, though organisations such as Innovation Supernetwork also run hubs that prepare and connect young businesses with investors.

Because they’re involved so early, angel investors look closely at the founder’s passion and commitment, as well as how well thought out the business plan is, to make sure their money isn’t wasted. They often take an active role in the business and bring experience, knowledge and useful contacts with them.

Crowdfunding

Crowdfunding raises money from multiple donors, often in exchange for a reward such as a free product, or in some cases equity.

Crowdfunders back ventures that interest them personally, rather than looking purely for a return, so how you market your idea and engage your audience matters enormously. Crowdfunding takes real planning and time so it’s not necessarily an easy route.

Venture capital

Venture capital (VC) funds and companies look for businesses with high growth potential and, in turn, big returns on their investment. They typically take an active role in decision making to help maximise the business’s success.

VC firms invest for a living, so they know the process inside out. Your elevator pitch and financial records need to be spot on. VCs fund businesses at different stages of growth, and only a few will offer pre-seed or seed funding for early-stage ventures, so research a fund thoroughly before making contact.

Grants and local support

Local authorities and support hubs, such as Business Durham, often give businesses access to a range of grant funding. Eligibility varies from fund to fund, but grants usually don’t require a stake in your business.

Credit cards and loans

Small business credit cards and loans give you access to borrowed funds, but you’ll need to pay them back with interest. They can offer quick access to cash without anyone interfering in how you run the business, though they can be hard to secure if you lack a sales history, and they may be tied to your personal credit score, which increases your personal risk.

Getting your business investment ready

Each type of investor tends to focus on different things, but the following areas matter whoever you approach.

Clarify your goals and messaging

Understand what success looks like for your business and align your messaging, including your mission statement, with it. What are you trying to achieve with investment? Make sure your ambitions come through clearly in your business plan or pitch deck, since investors will look closely at both, and check that your day-to-day actions actually support those ambitions.

Know your target market

Whatever your reason for seeking investment, understand your target market inside out. Update your customer personas and be ready to explain clearly how the investment will help you retain and grow your customer base.

Get your records in order

Tidy up your business behind the scenes, both physically and digitally. Keep organised financial and business records, and clear any debt where you can. Make sure your financial records are accurate, update your sales forecasts, and bring in an accountant if you need one. Sort your finances before you approach investors, since messy records will put them off quickly.

Build a clear investment plan

Create a plan that shows potential investors you understand where your business stands today, how you’ll spend their money, and what returns they can expect. This is especially useful if presenting doesn’t come naturally to you, since having the details written down keeps you on track. Don’t shy away from areas where you’re not the expert. Explain how you plan to address them as part of the investment. No one expects a founder to do everything, and investors know that.

Perfect your elevator pitch

Your elevator pitch is a 30 second summary of your business designed to get investors interested and wanting to know more. Be ready to explain succinctly what your business does, how it meets customer needs, and how it stands out from competitors, falling back on the detail in your plan if needed. Be prepared for questions afterwards too, since interested parties will usually want to know more and stay in touch.

Believe in yourself

It’s fine to feel nervous, but if you’re not convinced you can make a success of your business, it’s going to be hard to convince someone else to part with their money.

Get support preparing for investment

If you’d like a helping hand with this and more, our incubator programme includes relevant workshops and regular access to experts. Apply for our next enrolment now, and in the meantime, explore our library of blogs to keep building your knowledge.

For more practical advice about preparing your start-up for investment, call us on 03000 261261 to speak with one of our startup solutions advisors and find out how we can help your business grow in County Durham.