What Investors Look for in a Business
This article appeared in the July/August 2022 issue of MiMfg Magazine. Read the full issue and find past issues online.
Business owners seeking to expand their business or start new ventures often seek out funding. Finding investors to partner with is one viable funding strategy among many to enable your vision. What do investors look for in a business, and how can you successfully approach them with your idea?
Investment vs. Lending
Investment offers different incentives than lending. Investors give money to a business they feel is a good opportunity. In exchange, they receive ownership of part of that business, not repayment. They share in the financial success of the company as it grows and becomes more profitable.
Business owners need to understand that an investor may want to do more than write a check. Many investors have extensive business experience and may have sound advice to give the company management. They may have expert contacts they can make available to them if the relationship that they form together is a good one.
Investors’ primary goal is the opportunity to make money. They want to see proof that any company approaching them is successful, trustworthy, visionary and hardworking. They also want to see good ideas. If your company has a track record of profitability and you have a demonstrably good idea, you can approach investors with your requests for capital without fear.
What Do Investors Look for?
First, you’ll need to prove that you are someone who investors can trust with their money. How can you do this? Present them with objective bona fides: data. While some investors make decisions based on intuition, most will want to see market research and documentation of your company’s past and current performance and its financial sustainability.
Second, they’ll need to see a solid business plan. Your plan should begin with a comprehensive executive summary followed by evidence that you’ve considered all angles of your proposal. This would include:
- Your target market
- Financial projections that include hard numbers backed by data
- Your marketing plan
- Sales channels and projections
- Analysis of your competition and any potential obstacles and how you intend to handle these
- A timeline of when you expect this venture to become profitable
You will also have to convey in detail why your idea is worth investing in and what your competitive advantage is. It’s up to you to convince your investor that there is a market opportunity for your idea that is yet untapped.
Your business plan will need to convey all of the above in a concise but compelling way. Investors see business plans all the time. You want yours to grab their attention and excite them with possibility.
You’ll also want to specify when the investor will get a return on his money and what the terms are for the long-term arrangement you are proposing to create. This should include a clear investment structure so there will be no surprises when profits begin accruing or there is a change in leadership.
Ultimately, investors want to invest in companies. If you can show that your company is well run and your idea is good via your well-written and well-documented business plan, you’ll have a leg up on your competition in wooing investors.
About the Author
Vincent B. Mastrovito, CEPA, is a certified exit planning advisor as well as the founder and president of Prometis Partners. He may be reached at 616- 622-3070 or firstname.lastname@example.org.
Prometis Partners is an MMA Premium Associate Member and has been an MMA member company since September 2018. Visit online: prometispartners.com.