You've managed to scale your business from startup to a profitable venture with employees, cashflow, a thorough understanding of your strengths and weaknesses, a solid business structure, flexibility and an established brand. What now? The next step to crystallising your value is almost always finding and securing additional investment.
So, what are investors looking for? What characteristics make for a perfect investment? I've spent the last 30 years building, scaling and investing in businesses and during this time I've understood what it takes for a business to be investor ready.
Know your market
This may sound a little obvious but you'd be surprised how many entrepreneurs I meet who, undeniably, have a great idea, but have no prior knowledge or experience in the market and haven't spent a significant amount of time researching every aspect of that sector.
I'll admit, I've been guilty of this. In the past, I've invested in businesses because they were part of a trending sector - I saw so many other people investing and thought 'what's the worst that could happen?' The answer is, I could (and did) lose all of my money and more.
I invested in a sandwich shop once despite having no prior experience in retail and no real idea about how to run a food business. I assumed running a business was sort of universal, one size fits all. Obviously, I was wrong. You will come across different challenges within every sector.
The cashflow challenges of working with big brands
I don't invest in products or services - now that may sound a little bizarre, but it's true - I invest in people.
It is critical you illustrate a thorough understanding of your market when presenting to a potential investor. You need to be across the market dynamics, pricing, competitors and consumer behaviours. You also need to possess a passion and belief that you are building something exciting and innovative enough to gain mass traction.
A strong management team
Your business needs to have real infrastructure. You need to show great governance with an effective board, clear strategy, reliable finance and administrative operations and a route to market. I meet many entrepreneurs whose business would fall apart without them because it's too reliant on their constant presence. When you're looking for investment this can't be the case. Think of it like a game of Jenga - nobody is going to invest in something that will fall apart without the strongest block in place.
Every investor I know always takes time to effectively evaluate a management team because a team of people working well together is always 100 times better than one great guy leading a team of mediocre people.
You should be able to answer every difficult question by facing them head on. To do this, you almost certainly need to experience failure.
I work a little differently to the majority of investors because I don't invest in products or services - now that may sound a little bizarre, but it's true - I don't invest in products, I invest in people.
Recruitment is my forte and our industry is all about people, so to me, it makes sense that if I believe in the passion, commitment and ability of a founder, then I can trust that there's a special opportunity standing in front of me.
The only way a business will scale is if there's a real need in the market for that idea. When I say a real need, I mean not just a need you've identified yourself without extensively researching the validity of your discovery... on Dragon's Den we used to get so many people come to us with a business idea that didn't fulfil a specific need in the market, it was just a 'nice to have'.
As an investor, I want to see proof of demand for your product or service, this way I can begin to analyse where and how I can add value for you and, ultimately, how I can extract value.
Finally, and perhaps most importantly, I want you to show me that you understand the importance of failure for your journey to success.
To build a successful business, you should be able to answer every difficult question by facing them head on, learn from the feedback, and learn how to feel comfortable in uncomfortable situations. To do this, you almost certainly need to experience failure.
It's kind of inevitable in your startup journey. The beauty of seeking investment is you can take advantage of the wealth of knowledge an experienced business man or woman can offer.Suggest a correction