What investors really care about
When scaling a business, attracting investment is more about you than your products
When entrepreneurs want to scale their business, raising investment usually presents a headache. Do you choose equity investors such as business angel syndicates, venture capital firms, crowdfunding campaigns or public markets like AIM? Whichever route you choose to go down, investors of any type need a lot of convincing. And they aren’t buying your product or service – they are effectively investing in you and your ability to scale a successful business. So, what is the best way to sell you and your team’s ability to potential investors?
Innovate UK recently commissioned a report, Scaling up: the investor perspective, which compares the views of 250 investors and innovative scale-up business leaders on the key factors for success when scaling a UK businesses. It includes the views of investors both in the UK and internationally. The results have provided Innovate UK with valuable insight for the scale-up ecosystem – including what it is that investors are looking for when choosing scale-ups to invest their money in.
Strong management is a must
When it comes to a new scale-up investment opportunity, investors were clear about what they look for. A strong management team was ranked as very important by 96 per cent of respondents – and 97 per cent actually said that they had turned down an investment opportunity because of a weak management team at the top. Even if your product is strong and the market opportunity is there, investing money in a team that doesn’t have the skills to pursue an ambitious future is not on the cards for investors.
But what do they mean by ‘a strong management team’? The report shows that the essential characteristics investors are looking for are ambition, drive and passion – the key characteristics of successful entrepreneurs. They also want to back teams who can cope with the inevitable difficulties that come with scaling a business – so resilience and adaptability are also desirable.
However, when scale-up business leaders were asked what they think investors are looking for, resilience and adaptability were only recognised by 58 per cent as likely to be important to investors. This disconnect shows that businesses don’t fully understand the minds of investors, who are looking for the full package.
It’s not just about convincing investors that your products and services will capture a meaningful share of a large and growing market, it’s about demonstrating your management team has the qualities necessary to push that growth forward. And they need to be able to sustain high growth at scale, and the financial and operational discipline to deliver again and again.
A breakdown in communication
Another gap between investors and business leaders is the importance of communication. 84 per cent of investors stated poor or slow communication was a reason for turning down an investment opportunity – but only 46 per cent of businesses thought that this would have been a deal breaker.
It’s important not to underestimate the importance of something as simple as poor or slow communication. It’s important to show investors what you can offer and that you can deliver on your promises, which in turn will increase your chances of convincing them to become part of your growth journey.
Innovative businesses and the brilliant people at their heart will continue to face the challenge of securing investment for a long time to come. Competition is fierce. But for those growing through cutting-edge new technologies, this insight is vital as they often represent the riskiest investments.
Innovate UK plans to make the most of this insight through its work in supporting access to follow-on investment and the formulation of innovation loans, which it recently launched to the market.
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