Being investment ready consists of far more than having a professionally prepared business plan from an accountant or corporate finance adviser. Whilst the document proves to be an essential ingredient of the fund raising process the reality is, more often than not a business plan will be rejected. It’s not uncommon for over 90% of applications to be turned down, the odds of the remaining 10% subjected to further scrutiny of receiving funding are equally low. What are the reasons? Research and our experience would suggest factors leading to rejection are wide and varied:
- Incomplete plans – lacking essential market and financial information
- Market characteristics – too small, insufficient growth potential, lack of differentiation
- Lack of management skills – gaps in the team, dependency on founder
- Excessive risks – lack of experience, questions over the ability to execute
- Fund fit – competing portfolio companies, poor fit with portfolio companies
- Systems and processes – poor management information, lack of governance
The chances of attracting an investor would be enhanced significantly if the entrepreneur viewed the world from a funders perspective. Too many entrepreneurs, for lots of legitimate reasons run their business without this viewpoint and here lies a fundamental issue that needs to be tackled in the future. The blind spot is that entrepreneurs think they are in a place where in reality they are just not – a business plan will fail the painstaking process of due diligence because the growth foundations are not in place and the choreography of strategy and execution is out of kilter with the expectations of a venture capital investor.
Applying for investment funds too early and without preparation will often lead to rejection and this can be demoralising for the founder. The pursuit of building a finely tuned business with supporting structures that tick an investor’s checklist can be rewarding and help pave the way for an efficient fund raising experience. Be critical of your business plan and clear on the gaps. Don’t get caught up in the ‘blind spot’ that for sure an investor will make very visible to you.
Future support for entrepreneurs should aim to educate start-ups and growing companies just exactly what shape their business must be in before they knock on the investors door. Our experience is that there is more money around today than in recent years. The launch of the Northern Powerhouse Fund has attracted lots of interest and is just one example of SME growth/scaling support available to the well-tuned business. Our experience is the lack of well presented business cases is a major problem for the funding community
If you are ambitious and keen to scale your business, just ask yourself, how investment ready am I? After all would you take your car for a MOT with the exhaust hanging off?