Growing your business: Top tips for getting ready for investment

If your goal is to grow your business, achieving this will often require external investment in your business. As an entrepreneur, going through an investment round is no easy task. There are many considerations you should think about to put yourself in the best position when approaching investors.

When raising investment, a business founder should ensure that their time and energy is focused on securing the best deal. Therefore, to avoid any obstacles for would-be investors, here are some things to think about to help get investor-ready:

1. Be organised

Investors carry out a process called due diligence where effectively they undertake an information-gathering exercise and review everything that has happened in the Company to date. Investors may carry out extensive diligence on every area of your business, from intellectual property to finances to contractual arrangements. It is important that you are organised and able to answer any questions an investor may ask and provide them with any supporting documentation that may be required. If you have a robust filing system and know where all your documents are, this process will be quick and easy. However, if you can’t find an important document, delays may creep in and the investors may start to question your professionalism if, what they see as basic admin, is a problem.

2. Know how much investment you should raise

The business plan along with your financial projections should assist when considering how much money to raise. The valuation will be critical to determining the price per share and therefore the size of the investors’ shareholding. Valuing a company is no exact science but advice and guidance can be sought from your accountant or corporate finance adviser in respect of this.

3. Deal with your share capital early

When a company gets investment, it is selling share capital. Therefore, it is vital that the founder has a good understanding of what is being sold (i.e., the shares) and the effect of the sale (i.e., the dilution of the existing shareholder(s)). As such, get a draft share capital table up and running and consider the different variables, e.g., a 10% share option pool via a 5% option pool or an investor holding 30% of the share capital compared to 20%. It can be difficult to get shares back once you have given them away, so make sure you have considered all options before finalising your numbers.

4. Statutory registers

Statutory registers (also known as company books) are the definitive record of who’s who in the company. The registers should be up to date and complete. In addition to being a legal requirement, the vast majority of investors will want to see the statutory registers before investing.

5. Have all assets in the name of the company

Investors invest their money in the company, therefore, it is the company that should own the assets. If intellectual property has been developed by a founder but nothing has been done to transfer it to the company, it is likely the founder will own the intellectual property and not the company. As such, make a list of all the intellectual property and other assets which the company should own and check that it does legally own them.

6. Keep in contact with all shareholders

When a deal is completing, generally all the shareholders will be required to sign various pieces of paper. Given no one likes being asked to do something urgently at the last minute, make sure you are in contact with the company’s shareholders and have plans in place to deal with someone who may not always be readily contactable or available to sign.

7. Get documents signed correctly

If a document isn’t signed correctly, it may invalidate the whole document. Companies are increasingly using electronic signing platforms such as DocuSign to facilitate signing. However, if there are wet-ink signatures, ensure that when you are signing contracts any witnesses have signed, and added dates and addresses correctly.

8. Understand timescales

Finding the right investor for the company and completing the deal takes time. Often a period of 9 months is quoted to deal with the process from start to finish so make sure you understand your cash runway and start the investment process in plenty of time.

9. Build knowledge

In order to discuss the terms of a deal, it stands to reason you need to understand the meaning of the various terms and what is and is not market standard. Therefore, make a point of getting to know your good leaver from your bad leaver, your drag from your tag, and so on.

10. What terms might investors expect?

As a general rule, investors may want to appoint a director and have an agreed list of matters which would require their consent. Investors will also typically expect founders to enter into formal service agreements containing restrictive covenants. Investors may also want to see management accounts and budgets and may require that they can access company information and accounts on request.

11. Understand the cost of money

It costs money to raise money and early-stage risk capital can be expensive. A host of costs can be involved, for example, investor director’s fees, monitoring fees, diligence fees, and the investor’s legal fees. Therefore, when you are considering how much to raise make sure you include the costs of the raise. Costs vary from deal to deal however 15% of the raise is often quoted for the average angel syndicate deal. So if you need £200,000 for the business you could actually be looking to raise £235,000.

12. Speak to advisers at an early stage

It’s never too early to engage with advisers. We are often helping companies with a potential investment, months and sometimes years before the money comes in. Good advisers will help you get your house in order so that the company is as investor-ready as possible. This is really important as it allows the deal to be done quickly and cost-effectively so the founder can get back to building a great company.

Get in touch

If you are a growth business seeking investment or recognise any of the issues we’ve highlighted as potential concerns for you, please don’t hesitate to contact a member of our team.