3
Income-based model
Can competitors replicate what you are doing or replicate your idea? You need to demonstrate that it’s not easy to compete with you directly. Being first to market with aggressive marketing as your ally is a defensible strategy if you make sure you grow your customer base quickly and establish brand loyalty, but it’s not an easy one. I’m much more satisfied if your company has intellectual property and patents established or pending.
Mix and match?
In most cases, the best course of action is to blend two or even all three models, ensuring that you properly take into account your physical assets, the growth potential of your sector and the competitors you are up against. It is almost always worthwhile bringing consultancy on board to advise on the best blend, the data you will need to collect and the calculations you will need
to undertake.
One good rule of thumb to follow is that if the valuation process seems quick and painless, the chances are that you have overlooked something important or taken too light an approach. Business valuation is a complex procedure; it will usually feel complex.
How much investment should you request?
This really is a ‘how long is a piece of string?’ question. Every investment pitch is different, just as every business is different. The stage your business is at in its development can provide a rough ballpark, however. Have you merely developed a minimal viable product (MVP) and put together a business plan, or have you already got your first revenues in place and a cohesive, highly-skilled team?
Very broadly speaking, organisations tend to seek up to around £500k when their initial minimal viable product (MVP) is complete and a business plan is in place, up to around £750k once a working prototype has been developed and the first customers are in place, and up to £1m once the proposition is clearly very attractive to investors with a strong market full of potential. Investments of over £1m are generally reserved for businesses which are already earning revenues and have both an exceptional financial track record and forecast.
Looking good: positioning your business attractively
Selecting the most appropriate model for valuing your business and a ballpark figure you are seeking are, however, just two pieces of the puzzle when it comes to attracting and securing investment. Given that having an attractive proposition is also key to establishing an investment value, you also need to think carefully about you to position your business as attractively as possible for that investment. Business value, of course, is not merely about financials.
Here are some points to consider:
Business plan and financial forecasting
Obvious? Perhaps. But it is so fundamental that it is still worth emphasising. Any business seeking investment to help with innovation and growth needs to have a very clear trajectory in mind for the coming months and years, and needs to be able to communicate that planned trajectory to potential investors. Whilst business planning always necessitates a certain amount of educated guesswork and ambition, there is still a wealth of guidance available to help develop the most accurate
plan possible.
Team
People are the lifeblood of any business. You don’t necessarily need to have a complete team in place to secure investment; many businesses seek investment precisely, so they can develop their team, or draw on third party expertise. However, you do need to be able to demonstrate why every individual within your business is there, demonstrating the value they add and their commitment to the future success of the organisation. Recruitment and retention can be costly challenges for start-ups and SMEs, so it is a huge bonus to be able to demonstrate how you have them under control.
Prototypes
If you are in the business of selling physical products, then having an engaging prototype in place is non-negotiable. Very, very few investors get involved on theory alone. Whether you are an early stage start-up working with an MVP, or a more established SME with an active product line, you need to ensure that the samples you share with investors are as compelling as possible.
Energy and personality
These elements are often overlooked. But investors look for people they can work with as well as product or service ideas they can generate return from. Many organisations fail to secure investment not because the underlying idea and plan was unsuitable, but because the leaders fail to understand the communication and collaboration involved in bringing investors on board. Positioning your business attractive for investment also means positioning yourself attractively as an investee – as someone with drive, ambition and business nous, but also someone who is willing to listen, learn and adapt where necessary.
