What You Need To Know Before Looking For Investment

The Atom Team

Securing investment is something that many entrepreneurs will look to do as their company grows, however, business owners often focus too much on the fundraising effort but fail to understand the implications of what financing means to their business if it is obtained. If you are on the hunt for investment, there are a few things you need to think about very carefully before you start the fundraising process.

Know your numbers

Too many business owners take a ‘hands-off’ approach when it comes to the numbers, perhaps thinking they can leave everything to the accountant. The truth is, you need to be familiar with the figures and really drill down into the detail, because that’s the only way you’ll understand how those numbers are impacted by your business activities. Sometimes you can focus too much on the headline turnover figures without understanding the dynamics that drive profitability, and that’s a rookie mistake.

If you can connect key metrics to your business activities, you’ll have far greater insight when it comes to decision making. Rather than getting hung up on the big headline figures, prepare to focus on the small details which underpin your business day to day.

Revenue is a vanity metric

This might go against the grain to many small business owners, but what you earn should be a secondary consideration. Profitability is more important than revenue and gives you a better indication as to the health of your business. Think of your business budget in much the same way you would your household budget and personal finances. If you were earning £50,000 a year but watching your outgoings and putting some away for a rainy day, you would technically be better off than if you were earning £100,000 a year and spending to your last penny.

What funders want to see is good fiscal management. If you can show you’re careful with your own money, then they’re far more likely to trust you with theirs. Every pound of investment has to see a return, which is why you need to focus on the details and recognise how each decision you make affects the numbers on the page. In order to attract investment, you have to demonstrate an ability to think about and manage your finances in a way which will see your business grow.

With money comes strings

Investors come in many shapes and sizes; some may be very involved in their investments, while others are hands-off.  You need to think carefully about whether you are looking for “smart” or “dumb” money. Are you looking for an investor that can guide you and open doors, or are you looking for an investor to deposit money and leave you alone?

Invariably you will find that no matter who invests in your business, you will have another person to answer to.  This can be jarring for entrepreneurs who are used to making all the decisions and not being questioned as to their validity.  With investment comes accountability, therefore it is important that when you seek funding, you are aware of how much oversight your investors will want and what overheads that will bring for you.

Be reasonable in your expectations

The vast majority of small businesses will start with smaller amounts of funding and work their way up. Often the companies which attract those large sums do so because there’s someone at the helm with a big name behind them or someone who has a proven track record of bringing investors good returns.

Without that career track record, you have to build your way up to the big investments. Once again, look at your own finances. You wouldn’t give your children £500 all in one go, instead you would start them on £5, then £10 and so on, only upping the amount when they’ve proved they can be responsible with it. The same is true of investors looking at you, so expect to start small but with the expectation that the sums will get bigger the more you show your worth.

It’s not all about the money

You should think of funding as a journey, one shared between business owner and investor. Funding isn’t all about the money and that’s the wrong way of looking at it, because you also learn a lot along the way. Taking on someone else’s money teaches you about responsibility, because it’s no longer just your own cash you could potentially be losing. By taking on that extra weight of responsibility, you almost certainly become a better boss and decision maker.

It’s also worth remembering that funders can bring with them experience and mentorship as well as cold, hard cash. The best investors have no interest in running your business for you, otherwise they would simply buy you out and show you the door. Instead, the investors you want are those who offer guidance and advice, and walk alongside you rather than dictating the course you take.

If you want to learn more about looking for investment, check out our podcast for an expert opinion on the best way to approach things.  For further information on the services provided by Atom CTO and to learn how we could help your business grow, please visit our website today.

We’ll be your virtual Chief Technology Officer
Whether faith in the existing team has been eroded, your current tech team needs a senior mentor, or you need a new tech vision for the company, Atom CTO is here to support you.