Business plans and pitches

Raising investment can be approached from a number of starting points but asking yourself a fundamental question at the outset can help focus the process – “Why raise investment?”

The answer might seem obvious: to fund R&D, develop a sales function, or marketing for expanding market presence etc. Nevertheless, there should be another answer to justify setting down the path for investment – that it will be used to generate additional value for founders, existing shareholders and incoming investors alike, with an alignment arising for all the company’s stakeholders from the new funding. 

Raising external funding is similar to designing a product or business model for a customer market. The customer here is the investor and what they are interested in is the capital play for their money. While absolutely they will need to be convinced of the robustness of the technology, the market size/opportunity, the quality of the team and so on, they will not become a “customer” for your product, nor invest in your business unless you can demonstrate the potential to deliver a significant return on their capital.

Keys elements that planning should cover therefore are:
• general funding landscape, both public and private sector (akin to the market research you did for your product, or seek a mentor or adviser who can provide this)
• clarity on funding requirement - how much, how met (equity/grant/loan) and when?
• fundraising strategy, identifying target investors whose “sweet spot” you would hit or who have the value-add skills, experience or network you seek on top of cash investment.

As investors receive literally hundreds of propositions each year, yours has to stand out from the crowd. As a start, your plan should clearly articulate what investors are looking for, ie solutions to real problems, innovation via either technology or business model, and growth opportunities in significant and expanding markets.

Addressing the five (or should that be six?) “P”s provides a guide as to what a pitch should contain and how it can be structured:
• Pain – are you tackling a real market “need”, that it will pay for to be addressed?
• Premise – what is your business model or how is your product to be sold?
• Proof – have you sold it before, to whom, or otherwise can the market be proven?
• People – recognise your team’s experience, skills and gaps.
• Purpose – what funding is required now and/or in the future, what will it be used for, what value milestones will it allow you to reach?
• Pitfalls! – avoid overestimating your opportunity, underestimating your competition, produce a realistic financial model and don’t be a technology seeking a problem!

Ultimately, investors want to realise a return and therefore it is important to demonstrate a considered exit strategy and understanding of the tactics required to achieve it. If you can demonstrate genuine alignment with investors’ aspirations for timing, stage and scale of exit, then you could be well on the way to convincing them to invest.

Andrew Sloane
Partner Morisons LLP
Contact: 0141 204 6747
www.morisonsllp.com