How to make your tech company investor ready
It can be difficult starting your own business.
If you have been successful at surviving those early day tests, scaling up to bring a product to market brings a whole new suite of challenges.
There are various options for businesses to explore when looking to raise capital for commercialisation. One of which is an equity investor.
The financial uplift and expertise from an equity investor may be the boost your company needs to prosper but gaining that support may be tough. Wales is rich with successful tech start-ups thanks to its strong entrepreneurial networks and programmes. This is fantastic news for the industry and economy, but it does present a highly competitive market for attracting investment. Companies need to ensure that they stand out from the crowd, convincing potential investors that their business is worth taking a risk on.
And it is good to get it right first time. There is nothing more frustrating than devoting your time and effort into preparing your investment pitch, only to hear that you are not quite ready.
To help prevent this from happening, there are steps you can take now to prep your company for an investor.
Create a limited company
This will allow the business to build credibility. Having a documented financial history will be more attractive to funding bodies and will also start to open the door for loan and grant funding if needed.
Know your business and where it is going
Preparation is key. It is important that you create a robust business plan that includes detailed marketing and financial information and projected growth plans. An investor will look for weaknesses in your plans in order to assess the size of risk they will be taking. Make sure you know your business plans inside out in order to thoroughly answer any questions.
Don’t forget, the investor is not only looking at the credentials of the business but also the people involved. They want to know the business is in the hands of an experienced team who have the passion and knowledge to drive it forward.
Create a prototype
Having a tangible asset to present will strengthen your position. It will show your ability to bring a development to the commercialisation stage and will also strengthen your position when discussing value of the business, amount to invest and the percentage of the business the investor would take.
Claim R&D tax credits
A business claiming R&D tax credits is attractive to an investor. It not only increases your bottom line, but it shows you have a strong grasp on your company accounts and entitlements. It also shows that you are a company for the future, a company investing money into research and development. R&D tax credits is only available to limited companies, so incorporating your company before any research and development takes place will allow you to take advantage of the generous relief.
Spread the risk of financial assistance
An investor’s main concern is the level of risk they will need to undertake when investing in your business. If you have multiple forms of finance in place, for example a loan from the Development Bank of Wales or a grant from Innovate UK, this will spread their risk.
Agree a ceiling figure for equity
It is important that all parties involved agree on how much equity you are willing to forgo in order to receive the financial and business help. Don’t be afraid to walk away if the proposed deal is not right for you. This is your company; you have worked hard to get it to this point.
Don’t forget, it is not only you that is under the spotlight. You need to find an investor that fits into your business and one that will provide the necessary expertise and experience to drive your company forward.
Matthew Jones, Managing Director at LimestoneGrey, Wales’ leading Chartered R&D tax credit consultancy, commented:
‘Taking your business to the next step can be daunting. There is a lot to consider but there is so much support out there. If you are a start-up, enrolling on an entrepreneurial programme such as Natwest Accelerator or Cardiff Eagle Lab will provide you with valuable business support and advice. Even though this will not guarantee investment success, it could act as a seal of approval for an investor as the qualities and foresight of the business have been scrutinised and approved by a reputable source.’
There are also companies out there that specialise in helping innovative businesses attract the right form of investment.’
Steve Evans, Managing Director at Celtic Innovation Solutions, commented:
‘It is important to become investor ready with a prototype in place. This will indicate the capabilities of the business team going forward. If you have an innovation idea in the emerging & enabling tech sector, it would be good to investigate the University of South Wales CEMET programme which can support a development over a 3 to 4 month time frame providing a desk top demonstrator of the idea. This will allow a business to determine financial implications to move onto a prototype development. This can give the seal of approval to an investor for funding support.’
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