When you’ve considered your investment options and thought about your route to getting investment, you have to think about being investment ready. There are some great resources available to help, and Beany is by no means the expert on this. We would recommend talking to New Zealand Trade and Enterprise (NZTE) investment team. They have amazing contacts and resources to support you.
Here are a few practical pointers I’ve learnt over the last few years:
Understand what investors are looking for
As entrepreneurs, it is easy to get caught up in your own little world and not understand what investors are looking for. Go and ask them. It’s not usually about the beauty of your product or service (that’s what we want to talk about), it’s about potential market size, scalability and credibility.
Have your financial ducks in a row
Beany can help here. Make sure your financial records are up to date, accurate and well presented. Make sure that your financial forecasting is well thought through with assumptions stated and a plausible plan on how to get there.
Don’t undersell your potential
Essentially investors are looking for potential. They are trying to buy at a low price something which can explode in value. Your potential may be in market size, product fit, your personal strengths, some unique IP. They are looking for an edge so show them what you’ve got. Now is not the time to be shy and retiring.
Value your business with some independent, experienced help
This is of critical importance, because this determines how much your shareholding will dilute and how much control and value you will retain. Asking the potential investor about your business’ value is not a good option. They may be called angels, but they are primarily investors and want bang for their buck!
You’re much more confident if you go into pitches with a solid valuation which you understand and agree with.
There are some ‘rule of thumb’ valuations floating around to give you an idea of valuation for young, high growth/potential business:
- Multiply your turnover by between 3-4
- Multiply your profit by between 8-10
These valuations are for pitches to investors or investment groups. Private sales attract different multipliers.
There is another way to look at the valuation, which is more from your point of view:
- How much money do you need?
- How much are you prepared to dilute your ownership?
If you need $1 million, but you only want to sell 10% of your business, then the valuation is $10 million. This approach makes sense but requires a lot of credibility in the marketplace. Think of Dragons’ Den and be prepared to negotiate.
Contact [email protected] for more information on how to be investment ready or contact your local NZTE office – they do have amazing resource.