Investment - the why, the when and the how

In this issue, I want to talk about investment - do you need it?

If so, when?

And what makes a good pitch?

Being a dragon on the BBC programme Dragon’s Den many years ago was a great experience and a chance to see all kinds of investment pitches - from the sublime to the ridiculous!

As a serial investor, I make it my objective to understand risk. If I’m going to part with my cash, like anyone I want the highest return for the lowest risk. And the higher the risk, the less attractive the deal. It really is as simple as that.

Over the years, I’ve founded, scaled and sold a series of enterprises, including Alexander Mann and executive head-hunting firm Humana International - which had a combined turnover of more than £1bn when sold.

My most recent business is Recruitment Entrepreneur International - a global recruitment investment company which now has a footprint in 10 countries. We invest in start-ups and scale-ups that we believe in, and we work with them helping them scale ready for exit.

#1 Do you actually need investment? 

It might sound strange, but the first question you need to ask when you’re starting or scaling a business, is “Do I actually need investment?”

Start-ups in particular, often don’t know the level of funding they require. Working out what you need is crucial. I’ve found that people generally go to one of two extremes. They either provide an overly meticulous chapter-and-verse proposal and spend months, and a fortune, pulling it together, or they do nothing.

My best advice is to take your idea or business as far as you possibly can with your own resources to prove the model and demonstrate success.

The more you can prove the concept the better the valuation you will get and least equity you will need to give away.

Most investors will value the business based on the perceived risk they are taking, so it’s your job to demonstrate that you have identified the risks and have clear plans to address them to maximise your value.

 My advice is to create a six-page executive summary because you should be able to do that quite quickly. You have to have some real substance in the plan.

Typically, you should seek an investor who has a track record in helping businesses in your sector go from A to B, and who has the contacts, insights and experience to ensure that you will have everything you need to succeed.

This is called smart capital, money with no expertise can sometimes be quite expensive.

#2 Making your pitch

When you make your pitch, you must be confident and credible. For me, an effective pitch demonstrates a problem that your business is solving - for example, in recruitment, it might be that you are catering for a specific niche. Or, another strong pitch is when you have a credible team - who might contribute to the pitch - and very strong numbers.

If you want to read more on this, I have a whole chapter on making your pitch in my book, Start Your Business in Seven Days, which you can download for free on my website.  

As an investor, I want people to talk to me. Look me in the eye. Explain their motivation, and make me understand why they are going to make that extra sacrifice.

I typically invest more in people than the product or service, as I passionately believe that people make the idea come to life!

My Top Tips:

• Research the investor or investors you are going to see. Check them out on Google, read any press coverage, any interviews where they have set out their business philosophy. Which other companies have they invested in? It’s really important that you understand their backgrounds and their motivations.
• Practice! It sounds simple but I’ve been left cringing when someone flaps about with too many pieces of paper, loses their train of thought, or relies too heavily on PowerPoint, and regurgitates the information on each slide in an uninspiring monotone.
• Stick to three minutes and give an executive summary of your idea that will hook in the investors. You don’t need every single detail.
• Have a strong, easily understood pitching document that you can leave with investors.

It’s also important to leave space for investors to quiz you on the proposal.

Invite questions. This gives them a chance to explain their own agenda, and give you a good idea about the areas where they are looking for reassurance. If they say, ‘That’s interesting, now tell me about the margins,’ you can answer that specifically and directly, and it’s the perfect moment to refer to your PowerPoint graphs or charts to illustrate the figures. 

Interact with the investors and answer their questions realistically.

If they want you to tell them what the downside for risk is, and you cheerfully say there is no downside, that is patently not going to be true. You risk your credibility and sense of realism, and guess what, you won’t be walking out of there with an investment.

And one final point on pitching to investors: make sure you convey what it is about you that is crucial to the business. What commercial value do you personally bring to the proposal: is it your network of contacts, your understanding and experience in the sector, your track record in delivering and exceeding targets? Demonstrate your personal added value, because otherwise anyone out there could run this business, and if that’s the case, an investor is not going to be interested.

#Choosing your investor wisely

As the African proverb tells us, “If you want to go fast, go alone. If you want to go far, go together.”

When you choose an investor, choose wisely, because their networks, insight, experience and track record will have a direct bearing on your eventual success.

Many businesses who are successful in securing investment, fold before getting to a point of sale.

At Recruitment Entrepreneur, we’re opening up our funding for ambitious start-ups and scale-ups for 2024.

If you’re a recruitment start-up or scale-up wanting to scale to exit, but you need investment, a great industry network, and a worldwide team of experts to help you, then please contact me directly.