Stephen Fear, self-made multi-millionaire and entrepreneur in residence at the British Library, discusses the top five factors other than return on investment (ROI), that global investors, look for before investing into a new business.
When looking for an investor, half of the challenge is putting yourself into the investor’s position and anticipating exactly what they are looking for when it comes to an investment.
In most scenarios, many entrepreneurs have financially stable business propositions, but often do not know how to sell their investment opportunity. Besides the business’s financial stability, investors often look at things beyond the numbers and desire additional tangible elements before choosing to invest in them, not to mention the excitement and levels of involvement that come with any proposed business idea.
Based on over 40 years experience and knowledge of both sides of the fence, starting and growing businesses and investing in and mentoring businesses, below are five factors, other than the ROI that entrepreneurs look for in potential investments.
1. Golden Vote
As existing owners may retain the majority of the shareholding within a business, a serious investor who has invested Capital into a venture would insist on a golden vote until their money has been repaid.
It is this golden vote which, regardless of shareholding, would make sure that any investor had the power of veto during the life of the loan, giving the investor the opportunity to cancel or postpone any decisions put forward by existing owners during this period.
Successful investors prefer to be involved in the overall strategic decisions of their investments as well as offer their knowledge and experience, ultimately playing a key role in the direction of the business. So to an investor, having the option of a Golden Vote is a big tick in the box.
Some business owners are only interested in trading their equity for money, however, this is not the sole aim of most investors. Many investors want to have a real hands-on role in the strategic aspects of their investment.
They often want to be visible to the board and to be seen as an active member of the strategic team, involved in the decision making of senior executives. Most investors have an abundance of contacts and knowledge that they are ready and willing to use within the businesses they invest in. Serious investors will rarely want to be known as a passive investor, so be prepared to have that level of hands-on involvement.
Investors need to be kept up-to-date with the majority of activity within a businesses that they have invested in. Good communication and a constant flow of information is the lifeblood of any successful business and the more transparent a business model the easier it is to see what is going on.
Having an investor knowing the outputs and results of the various elements of a business isn’t a power trip, it’s to give them confidence in their investment and the opportunity to step in at any instance and use the experience that they have gained over the years to provide advice and support when needed. If investors are not aware of what is going on, they cannot help you or the business out. Knowledge is power.
4. Brand Potential
When investors are looking at a product or service to determine if it has a long-term potential gain, one key factor is assessing the investment’s brand potential. Almost every single successful product that is out on the market has a strong brand.
Investors like to associate themselves with brands or businesses that can be encompassed under their brand umbrella. The chances of securing an investment are significantly increased if an investor feels that it has brand potential.
This is one of the most important factors that will drive a successful business on, innovation keeps a business evolving, developing and growing.
To grab the attention of any potential investor, your business needs to be fluid enough to open to innovation. Static business models tend to fall by the wayside as they fail to embrace new trends, technology or ideas.
It’s rare when it comes to investments to come across something truly groundbreaking and revolutionary. However, if a gem is found then investors will jump on the opportunity to put money behind something they believe is exciting and new. In many cases investors will take a risk on innovation over sound financial predictions.