Securing equity investment

If you've just started your business, business incubators could also give you some support before you apply for funding. Business incubators can help you get access to bank loans, loan funds and angel investors.

Deciding which type of investor you need

There are different kinds of equity investors. Different investor types suit different businesses. Their interest in funding your business depends on factors such as:

• Your sector
• The stage of your business
• Your business location
• Your financial position

There's no point ruling out any investors who might be prepared to invest in your business. But, at the same time, you want to quickly rule out those who won’t be interested in your business.

For example, if you’re a very early-stage business with little to no revenue, it's probably not worth approaching large private equity houses.

That's why it's important to know how much money you need before thinking about what type of investor would suit your business.

Certain investors may not be able to give you all the money you need. You may need a syndicate, or to approach larger investors.

The amount of money you need can also have a material impact on the valuation of your business.

Be prepared

Preparing your business for investment

You need to prepare your business to attract equity investors. This includes preparing a robust business plan, having a board of directors in place and brushing up on your presentation skills.

Getting ready to pitch to investors

Having a good investment pitch is critical. The way you present your pitch will differ depending on the investment you’re looking for.

For example, angel investors may be happy with a technical but more informal pitch, while established venture capital firms will want a more formal pitch with a proposal they can scrutinise.

Crowdfunding platforms may want the same information as traditional investors, but in a simplified form.

Getting a valuation for your business

Be prepared to negotiate to secure your equity investment. This means coming to these negotiations with a clear idea of what you think your business is worth.

Be ready to back up the reasons for your figure — your potential investors may want to talk you down to a lower valuation.

Bear in mind that you need to value your business not only on the basis of its current state, but its future state too. For this reason, the amount of money you need will affect your valuation.

Approaching investors

Approaching investors can be a challenging and time-consuming process. Remember that investors are approached by thousands of companies every year. Therefore, think about how you can make the most impact when you approach an investor.

There are several ways to approach investors. Apart from phoning or emailing, investor events are also a great way to meet investors. You can also be referred by a contact or an intermediary.

Be prepared to approach a lot of investors and accept that you will get a 'no' from some of them. However, it's a good idea to use these opportunities to gain feedback and alter your pitch and business plan to improve your chances in your next meeting.

Agree terms with your investor

Once you’ve found an investor and you’ve agreed on a valuation (or at least a rough figure), the investor will usually present you with a term sheet.

The term sheet outlines the terms of their investment. Different investors will use different term sheets. These come in differing levels of formality.

A term sheet will likely cover details such as:

• The proposed funding and related terms
• The board structure of the company
• What happens in the event of liquidation

Check these terms with your lawyers and make sure you're completely happy with them before accepting them.

Preparing due diligence and legal processes

Any potential investor will want to carry out due diligence. Your investment proposition will have detailed revenue projections based on your current financial status and expected future performance. Your investor will need to verify these figures.

As you go through the process of raising equity, you may need to revisit one or more of these stages. Raising equity investment is as much an art as a science.

If you’re unsure whether equity funding is the right option for your business, it's a good idea to read the following guides:

Finance options for your business: debt versus equity 

Raising equity funding