Scotland’s top investors and eager entrepreneurs are currently in the process of building up to one of the most important events in their calendar – the Engage Invest Exploit (EIE) Conference, which is being held this year at the Edinburgh International Conference Centre on 11th May 2017. As part of the run up to the event, I was fortunate enough to attend the EIE “Investor Readiness” workshop last week. The workshop was based on a “speed dating” format whereby ten investors from different backgrounds each be moved between tables over five rounds of questioning from the audience for the hour. Following on from the evening, here are the top tips that I gathered for growth companies seeking to raise investment:
1. Get your pitch nailed!
It may seem like an obvious point, but one of the overriding factors that the investors were trying to make clear was the importance of having an excellent pitch. By that, I mean that the pitch needs to get across your product/service, figures, and, importantly, enthusiasm in the most efficient way possible. Often many start-up companies are tech based, so it is also crucial to be able to explain sometimes complex, new ideas in the simplest manner. Investors hear numerous pitches so be prepared and make yours stand out.
2. Be prepared to dedicate your time
Investors are not only investing in a product or a service, but you as an individual. After all it is you that has the idea, drives the idea and is the one willing to push it to the next level. As a result, many investors will be wary if you have other employment commitments and will want to know that you are giving the company the full time and dedication it needs to succeed. Of course, investors will understand that you need to pay the bills too and you may have had to have another role while looking to raise investment. However, a salary is usually negotiated with the investors at the first round of investment (if not in place before then) and, from that point, investors will expect the company to be your main focus and priority. Also, a word of warning in relation to salary – as one investor put it “please don’t expect to turn up to work in a Ferrari from the word go.” In the early days of a company’s growth you will need to align your expectations to what it is realistically able to pay you.
3. Know what kind of investment you are looking for
As each new investor approached the table, it was clear that each has a different take on their investment strategy. Options range from investment syndicate groups (whereby the investor would get a stake in your company, and likely appoint someone as a non-executive to your board), to peer-to-peer lending (whereby money is given to the company by way of a loan and thereby gets no stake in your company), to investors who are acting alone (who may have a very flexible “hands on” or “hands off” approach). Have a think about what would work best for you and your company. Do you want the expertise and knowledge of having someone sit on your board as a non-executive? Would you prefer to have a loan so as not to dilute your stake in the company? Make sure you have done as much research on a potential investor as they may have done on you.
Have a clear idea of what the end goal of your company is. The investor is not simply looking to invest and walk away. The investor needs to know what the big picture is. Often this means that the investor is looking for companies that will offer high growth and be in the market for a potential sale within a number of years. You will need to make sure that your long term ambitions for the company align with theirs.
5. “Be a painkiller, not a vitamin”
Perhaps most importantly, the message that was coming across throughout the evening was that no matter how good your product or idea was, make sure there is a market for it. While vitamins are nice to have, painkillers are the ones actually offering a cure. Be prepared to go to your investor knowing that your company can actually make money! Formal letters of intent from potential customers are not necessarily essential (although would greatly boost your chances of a successful pitch), but you need to be able to put to evidence that there is real demand for your product out there.
I hope these tips coming directly from investors themselves are helpful and we wish all the companies taking part in EIE17 the very best of luck with their investor pitches.
If you would like to speak to us about raising investment for your company, please do not hesitate to get in touch.
Gordon Herd, Solicitor
DD: 0131 226 8227
For MBM Commercial LLP