Advice from David Pattison - Investment expert & Best selling author
When young businesses are looking for investment, they do not unreasonably see the investor as only bringing one thing: money. My experience tells me that ultimately investors only care about one thing: their money. So, in theory, the only focus for an investment deal is the money and how it is going to be used.
But there is so much more that an investor can bring to a young business and if you have a choice of investors then factoring in what else an investor can bring should be part of the decision.
Every investor I have ever met, be they an individual or an institution, will claim to bring more to the table than just money, many don’t. So, here are some of the types of advisers and what they might, or might not bring:
Most early-stage businesses will look to raise money from friends and family or angel investors. As well as money there is an opportunity here to get some useful advisers on board as part of the team. They will have sector experience or an accredited skill base, finance is a good example. They will want to help. It is easy to find these people but very hard to find the right ones. They can open doors, and bring experience of mistakes they made and successes they have had. When I take on these roles, I usually suggest a three-month trial to see if there is compatibility on both sides.
Be careful of the advisers that are looking for something to do or are a bit off the pace and bring outdated thinking to the table. Also, be wary of the ‘black book’ non-exec who in my experience isn’t much use once they get to Z in their address book.
The conservative investor
This can be an individual or an institution. By conservative, I mean that they are constantly looking to protect their money. Every decision that you make will be measured against protecting the investment and the potential return.
The upsides are that they are not usually looking for a massive return on investment, but they will want a multiple, they won’t want to run the company for you and they will introduce good governance into the company as a basic requirement.
The downside is that they won’t bring a lot else to the table other than a few contacts.
Be especially wary of the investor who wants to invest a relatively small amount that they can’t really afford to lose. They can be a real drain on your time and can panic at the slightest bump in the road.
The ‘motivated’ investor
At some stage, you will come across an investor that sees a massive opportunity in your business and wants to invest and wants that money to really accelerate the business. They will be looking to get a big multiple on their money. This is usually an institutional investor but could be high net worth. I always see them as a ‘motivated’ investor.
They will drive the management and the business hard, and bring a whole range of disciplines to reporting and forecasting. They will usually offer (or insist!) on adding a non-exec to the board who has the experience that will help the company. In my experience, they are always additive to the business.
These investors can be transformational to the business. They can make your company a much better company. They will let you and the team run the day-to-day and expect you to know your market and your business better than they do but will take a very keen interest in both.
The downsides can be some distraction with the amount of information they require and if things don’t go well, then they will react quickly and make big decisions affecting the company and the management.
Always look beyond the money when you are in the investment process. There are a lot of people out there who have had the experiences you are about to encounter. Whilst I would always expect the executives to do the work, having good, real-world advice on hand can help to smooth the decisions and give comfort that the unknown is just a little better informed.
Leading a young business can be a lonely place. Use the fundraising process to get some big guns on board to help you achieve your goals.
David Pattison is a start-up funding expert, business chair and mentor, and author of The Money Train: 10 Things Young Businesses Need to Know About Investors. The book won the best Startup / Scaleup book at the Business Book Awards 2022.