The journey of an entrepreneur begins with an idea. The fuel for the journey is however money. Every implementation has a price tag and as the adage goes, you do need to spend money to make money. While financing and strategic decisions do need to be treated separately, every entrepreneur knows that the strategy that can secure the funds, is the strategy which shall be implemented.
How does one go about getting funds to implement an idea? Investors is usually the resounding response. However, in reality, investors are not always the answer. All money comes with a price and just part of the price is quantified. The unquantified part, that is what can sometimes cause the biggest problems. This month, take greater control of your strategy. Begin by understanding what being investor ready is, and then choose whether or not you are, indeed, investor ready.
The starting point of the process is to understand your own business, objectives and motives for the investment. There are some basic perspectives to be kept in mind:
Are you prepared to give up a large share?
Ideally, investors prefer companies whose entrepreneurs have skin in the game and have invested their own money. If you are not willing to invest in yourself, they rarely will. If you are a start-up, bootstrapped, unable to take a loan, remember that this means when an investor wants to invest, they will want a large share of your equity. Be prepared and have answers.
Is your organization and its employees ready for investors?
Investors like clean set-ups. Make changes to prepare yourself. Review your operational procedures and make sure the various aspects of finance, audit, accounts, sales, etc. all align with each other. Prepare your employees for an organizational restructuring which could come as a result of an investment decision
Are you ready for the due diligence process?
Being investor ready is equal parts being due diligence ready. What this means is that all financial reporting systems are in place and that your firm is due-diligence friendly. You may want to take some steps to implement this:
•Consider appointing a reputable audit firm
•Clean-up your accounts and review the documentation supporting your accounts.
•Consider investing in good MIS or ERP systems to produce accurate data during discussions and post funding
•Evaluate the most suitable legal structure for investment
•Have a robust business plan and strategy in place and ensure granularity in projections as well as linkage to historical performance
•Get a formal valuation done which can be defended based on your business plan
Are you, as the entrepreneur, ready for an outsider?
Are you really ready for an outsider to be a part of what has been just yours – to have them evaluate your ideas, in your meetings, involved in strategy. Are you ready to ask for clearances from them and to use their inputs for fruitful organizational change.
Answer the above carefully keeping in mind that the right investor is like a partner. They can enable success that may have otherwise been beyond reach by providing value enhancement over and above money. For example, improvements in corporate governance, strategic direction, board advisers access to network of partners and customers, additional capital - equity and debt, etc. The incompatible investor however, can do just as much damage.
Being investor ready is like being ready for an alliance. You have to be mindful, know what to spend on and seek advice to keep you objective. Most importantly, remember to keep your own objectives and plans as the primary factor irrespective of investor readiness or investor acceptability. Your business was your idea, you need to be open to new opinions and change for growth, but, not if you completely alter the core of your business.
This article was originally published in Bahrain This Months June 2022 issue.