19/05/2011

By Guy Rigby, Head of Entrepreneurs of Smith & Williamson

Finding the right investor with the right style and level of involvement is challenging, but remember that meeting potential investors is as much about you picking them as them picking you. With this in mind, here are some key things to bear in mind, from the people who should know — the investors themselves.

Trusted relationships

Nearly all of the investors we speak to stress the importance of long-term relationships and trust. Harry Briggs of Balderton Capital, for example, suggests that you should look for someone you respect and trust enough to want to have them beside you for the life of your business.

This is a view endorsed by Oliver Woolley of business angel network Envestors: “Ensure you feel you can work with the investor to reduce the chances of the ‘business marriage’ going sour — this is a long term relationship and it should be based, at best, on friendship and, at worst, on mutual respect”, he says.

Gary Robins of private investor syndicator Hotbed says that looking for the right investor is about much more than just the financial terms of the deal which the new shareholder is putting on the table. “Business is all about relationships built around mutually beneficial commercial arrangements”, says Gary.

Networks and added value

Your investor should be someone who is supportive and can, if possible, make useful introductions and/or provide commercial and business support.

Look for a partner who will take a supportive role in the development of your business. It’s not just about the capital. Businesses should look for an investor who will actively share their experience, knowledge and contacts in order to enable them to flourish”, suggests Shani Zindel of Isis Equity Partners.

Jo Oliver of Octopus Ventures adds, “Decide what you want from an investor. How will the investor add value to your business beyond cash and, most importantly, can you see yourself working with the individuals that you meet, over years, not just weeks?

Relevant sector expertise, the ability to open up their networks and a successful track record to share advice and to ensure the company stays on track are important qualities that allow investors to add value beyond capital, according to Karima Serageldin of Ariadne Capital. “Think alignment, alignment, alignment — whether this is to do with valuation or desired exit route.”

Dan Adler of Lyceum Capital agrees that a good investor will not just provide capital, but also the operational, strategic and financial expertise required to deliver significant and sustainable growth.

Optimism blended with realism and a sense of how businesses are really operated”, is how Charles Thompson of private equity house Inflexion summarises what to look for.

Check credentials

Oliver Woolley stresses the need to ensure that private investors actually have risk capital available to invest. “Some just like window-shopping and talking big. Ask to speak to the owners of other businesses in which they have invested, if possible, to establish the investor’s credentials.”

Capital is a pre-requisite, but make sure the investor can provide follow-on funding and that it has a track record of doing so”, adds Jo Oliver.

Gary Robins urges companies to check out potential investor partners with companies they have backed in the past — in the same way that your prospective backer will look into you.

Finally, before you accept a seemingly attractive set of investment terms from one investment house, and kick two or three interested others into touch, make sure you’ve reviewed the legal terms attaching to your chosen offer, advises Gary Robins. “If you find out late in the day that those ‘knock-out terms’ come with some onerous strings attached, you might find that the suitors you spurned are suddenly too busy with other deals to re-engage with you,” he says.


A date for your diary

Later this year we will be hosting an event focusing on how to grow your business using external equity funding. “Inside Venture Capital” will be held in London in October.

If you are interested in attending please email your personal and business details to insideventurecapital@smith.williamson.co.uk.

If you would like to discuss the subject covered in this article or you want to sound out someone about raising finance for your business call Guy Rigby on 020 7131 8213 or email him at guy.rigby@smith.williamson.co.uk.


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