Following the revision of the plan we soon secured four other investors and raised the funds we needed to start the business. I learned that the people most likely to put money into a small business are current or previous small business owners who have been successful themselves. They have little interest in reading what the average age of a customer is or what qualifications the company’s accountant has. While this information may be useful to the business owner, the investor just wants to know how their money will be spent, how realistic and achievable the goals are and how much they will get back and when.
We once had a meeting with an investor who was considering an investment of a quarter of a million dollars, which would allow us to secure a new supplier and expand our IT capabilities. The deal was structured to include part debt and part equity. We presented this investor with our business plan and he went straight to the financial section and interrogated us for two hours on how we intended to hit our targets. At the end of that session, which was a major turning point for our business, he took out his cheque book and we banked the money that day. If you get the opportunity to speak with an interested investor, it’s important to realise that a business plan is only one tool and some kind of presentation or open forum will also be required. You have to get the investor over the line with your passion, enthusiasm and a solid, verifiable business opportunity. At the end of the day our obvious commitment, not the information we presented him convinced our new shareholder. Once the deal was done he didn’t even take the plan with him!
Another very important lesson I learned was that the business owner must be responsible for the business plan and be the first point of contact with the potential investor. It is often advisable to seek external expertise when it comes to facilitating the deal and we had hired a consultant who wrote a business plan for us and showed it to some of his own contacts to generate interest in our business. On one occasion, my partner and I went to meet with the potential investors along with our consultant and when all of the pleasantries were finished with and it was time to talk about the business, we were asked to leave the room. We left in disbelief and our gut feeling at the time was that it would not go anywhere. We were right! No one will ever care about your business as much as you do and therefore no one can ever sell it better than you can.
The owner of the business needs to take an evangelistic approach to selling their business concept to others. Passion is a determining factor when it comes to raising money and a consultant can rarely demonstrate that passion for a business he has little vested interest in. I always recommend that business owners delegate certain tasks to consultants who are better skilled in those areas but the ultimate responsibility for attracting finances for a business should remain with the owner.
One final lesson I learned about planning and raising money was that it is important to be able to demonstrate a reasonable correlation between the funds being requested and the planned intention for those funds. One potential investor once told us that he would have been more likely to invest in our business if we had asked him for three times as much as we did! He felt that the goals, which we had documented, would be unachievable if the only funds we had were those we were asking for.
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