By Investor, Javad Marandi
Any small business owner or entrepreneur will be only too familiar with the challenge of securing funding to grow and make a success out of their business. And while it is by no means a new problem, limited access to credit has become a more serious and widespread issue since the 2007 crash.
As an SME owner the odds are now, more than ever, stacked against you when it comes to securing finance. For investment funds, small businesses simply aren’t worth the time in researching and financing, while for banks the risk involved is often too large, with no track record or significant assets against which to secure loans.
The situation is not all doom and gloom though, and we have seen angel investment – funded by private individuals – emerge as a popular and important third option. An estimated £1.5 billion is invested annually by angel investors into start-up businesses, making this a critical line of credit.
Getting inside the head of an angel investor and understanding their motivations is critical if you are to succeed in persuading an individual to invest not only their money, but also their time and expertise. As an investor with 20 years’ experience of funding British business, I’m often asked for my top tips for people pitching to private investors. Here are my top five:
1) Be clear about what you want: it’s essential that you set out exactly what you want and expect from an investor – honesty from the very beginning of the process will save any misunderstanding or break down in relationship further down the line. Whether you are looking for an investor to help by bringing a wealth of business expertise and a large industry contact book, or if you are merely after additional finance, set this out straight away.
2) Present a long-term plan: while it is important to provide a viable exit strategy for an angel investor, don’t let this dominate your proposal. Of course investors need to see where they will be able to realise a return on their investment, but they also want to see that you have a strong vision on where the investment could take the business. Show them that you’re in it for the long haul by presenting a 5-10 year plan and highlighting precisely the role you want your angel to play as part of that, whether large or small. Angels want to know that you are looking for a partner, not for someone to sell your business to.
3) Illustrate the market opportunity: you’ll need to be able to demonstrate to the investor the growth potential of your business by outlining the problem you are solving, and the subsequent market opportunity. By setting out realistic targets and ambitions, backed up by real market insight and knowledge, an investor is far more likely to embrace and buy into a project. The more proof points and evidence of early success you can demonstrate, the more confidence the investor will have in making the business work on a larger and more long-term scale.
4) Give the angel the opportunity to add value: each angel investor will have their own reasons for wanting to invest into a business; some will take a more hands on role than others. However, when pitching to an investor, always build in the opportunity for the investor to add value, value that goes beyond financial investment, whether that be sitting on the board of directors, facilitating introductory meetings or providing business advice and mentorship. Even if this isn’t of interest to the investor, illustrating your desire to learn from and take advantage of their business expertise will do you no harm.
5) Sell yourself: presenting a robust and well thought out business strategy to an angel investor is only half the battle. In fact, for many investors what you’re like as a person and as a team is often more important than the business proposal itself. After all, investors want to work with intelligent and driven individuals and if you don’t come across well, the chances are they will struggle to see the potential of the business. Ultimately, as an SME owner, you are just as important as your client list, revenue and forecasts. Make sure this comes across by having all the relevant people in the room and remember to be yourself when you present.
Javad Marandi is a British investor, entrepreneur and philanthropist. Over the past 20 years he has developed portfolio of successful investments across a number of sectors around the world. These range from hospitality and retail, to commercial and residential property, construction and fashion.