Closing any deal requires a number of elements to come together:
- it has to be a good deal for both sides
- there needs to be mutual respect
- the timing needs to be right
- there needs to be momentum
1. A good deal for both sides
It sounds obvious – but both sides want something and ideally in equal measures.
You want investment to turbo charge your business.
The investor wants to get a return on investment, with a reasonable certainty.
Put another way you need to be investor attractive. You will find lots of articles online about checking investor attractiveness – just be aware that the investor will be looking at your business from every angle and will be testing your ability to deliver at every stage.
Watch our video of essential tips on pitching for investment:
2. Mutual respect
Investors always take the early high ground. If you’re dealing with angel investors then your work is cut out to demonstrate your own credibility. The key to this stage is preparation and support.
Investors will always look at the financials – so make sure that you can justify all your assumptions, that they are professionally presented and that you know them inside out.
Apply the same level of preparation to every aspect of your business including your competitors and suppliers.
Do your due diligence on the investor and ask the following questions:
- What influence and experience can they bring to bear?
- Which other investors do they engage with?
- Who else have they invested in?
Talk directly to CEOs of other businesses they have invested in - so you can judge whether there is likely to be a proper alignment of interests over the longer term.
Remember that investment relationships last a lot longer than many marriages. Challenging your investor in the right way works.
Engaging good advisors will also help with your preparation and credibility.
Timing is critical both in terms of the attractiveness of the deal, but also in terms of closing the deal.
You will need to show that you have taken the business as far as you can and that the investment will now take it to the next stage.
You will also need to show that you have thought through the next stages of investment and that future dilution still works for both of you.
Be absolutely clear on all the stages of due diligence. Be clear on what is likely to be demanded in terms of warranties, indemnities and other legal terms.
Involve good advisors early!
Deals need momentum to close. Be cautious about granting long periods of exclusivity unless you are confident that there is already a desire to make it happen. Also that the investor gives you a clear timetable for their due diligence.
Look for open communications and honesty.
Deals often fail – you need to know if it won’t happen so that you can move on to other alternatives.
In summary, negotiations are likely to be effective and lead to closing a deal if you ensure you:
- are fully prepared
- use good advisors earl
- understand the investor’s motivations
- keep on top of the communications
Lastly have confidence – you’re the entrepreneur – you’re the one with the great idea and the ambition. Let them know that you will deliver a great return on investment.
Innovate 2016 will provide a number of opportunities for companies to meet investors.
Whether you are a company exhibiting, a company pitching or simply attending you should you should come prepared. Have your 30 second elevator pitch ready and a short 2 page executive summary ready to handout.
If you are an investor then come along and meet some of the most innovative companies in the UK.
More information on closing a deal with investors
Follow or contact me on Twitter: @BruceColley1
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