A recent study by Guidant Financials shows that entrepreneurs often rely on funding from retirement plans, close friends and family, and private equity.
However, these may not have long-term favourable results for your business.
Friends and family should not be your only means of private investment in your start-up.
Here are the 10 steps you need to follow to secure investment from reliable investors for your innovative start-up in London.
1. Create A Business Plan
Every prospective investor will first look at your business plan. A good business plan doesn’t have to be complicated or overly original. However, it should state your business goals clearly, along with its scopes for scaling.
While making a business plan do not forget to identify the future risks along with the opportunities. You can work with government-supported programs like Tech.London to receive advice on mentorship programs, building a business plan and securing capital.
2. Build A Strong Team
When you approach a potential investor, they will take a look at the strength and skill set of your team. Team strength depends on multiple factors and also includes team building. However, the two primary ones are business experience and sectoral experience.
A good CEO or CFO always knows their strengths, as well as their weaknesses. Unless you are aware of your and the team’s weak spots, you won’t be able to adapt quickly to a constantly evolving market.
3. Decide On The Level Of Funding For Your Start-up
With a business plan in place, now it’s time for you to figure out how much capital you need. For any new start-up aiming to create a new product or service from scratch, you may need anything between £25,000 and £500,000.
The amount you need will often dictate where you can find the funds. Therefore, get a near-accurate estimate. Aiming too high or too low can land you with the wrong investors.
For start-ups already in motion, the capital requirement may be higher. However, we must not forget that the growth and scalability of every business vary. Consider the opportunities and risks stated in your business plan to estimate how much your start-up needs right now.
4. Determine The Valuation Of Your Start-up/Project
Valuation is complicated. It is easy for the founder to determine the valuation of their venture. In such situations, take help from the Department for Business, Energy and Industrial Strategy. They maintain a database on all the schemes currently available for SMEs and start-ups. They also offer expert advice to new entrepreneurs.
There are quite a few approaches to determine the valuation of your company. You can use any of the following methods –
- Price-to-earnings ratio
- Entry cost
- Discounted cash flow
- Valuing the assets of your business
- Business rule of thumb
5. Determine the USPs Of Your Start-up
Every business has its unique selling points (USPs). These are factors that make your start-up stand out amidst the competition. It tells your investors why they should trust you and how your business can make a dent in the market topography.
You should have enough research to back up your USPs. For example, if your USP is a new product. You should have an estimate of how long it will take for your competitor(s) to come up with a similar product.
Your prospective investors will look at your team once again to check if they have the right set of skills and experience. The right blend is necessary for maintaining brand USP and evolving with the market.
6. Work On Protecting Your Intellectual Property
Protecting your intellectual property is crucial when starting a new business. It applies to easily replicable products which can be protected with a patent. Check out this page for all the updated info you need about patents, copyrights and trademarks.
You will need the advice of a legal professional to learn more about which intellectual property rights apply to your products or services. Always go with a legal professional with experience in this area of practice.
7. Make Your Due Diligence Checklist And Update It
Due diligence preparation consists of various steps. The exact process will depend upon the type of investment you are seeking. However, almost all due diligence includes investigating your company to gain a better understanding.
It is a significant task, and you should seek help from legal and financial advisors.
Here’s what your due diligence process should cover:
- An overview of the start-up
- A complete in-depth analysis of your business
- Financial information
- Assets (both tangible and intangible)
- Compliance and legal issues
- Strength of your team (management and other employees)
- Evaluation of the findings from the analysis step
- Creation of a final report
These four steps will help you decide whether you want to move forward with the investment application. Preparing due diligence is one way to remain ahead of the process and prevent possible failure during investment meets. It covers the groundwork necessary for the potential investors to scrutinise.
It may seem like a lot of work, but it can save your company hundreds of thousands in the long run.
8. Get Your Business A Reliable And Experienced Solicitor
Finding the right legal advisor and lawyer is key to securing an investment.
While looking for a solicitor you should:
- Check their experience
- Check their client review
- Consider their fee against the size of the deal
All equity investments demand the presence of a legal advisor. You can hire one based on a retainer or fixed fee before your investor meetings begin.
9. Find The Right Investors
That is the ultimate goal of this 9-step process. Finding the right investor for your start-up is not going to be a walk in the park. However, with the right advice, it shouldn’t be impossible either.
You can check out angel investors for early-stage development.
10. In The End: Always Have A Backup/Exit Plan
When you are looking for an investor having an exit plan may seem counterintuitive. However, you do need one, if your prospective investor has the probability of withdrawing their funding midway.
Your exit plans may include a merger, an IPO, or an acquisition. Talk to an investment or financial advisor and mentor to figure out a tailored business plan that suits the brand image and interests of your start-up.