Wed 02 / 06 / 21
An introduction to investment and the investor mindset
In the next of his blog series for our Catch the Wave business support programme, Mark Crowter, Partner at Galloways writes after a session with Nicky Craddock of Cow Corner, introducing you to the world of investment, and the investor mindset.
By Mark Crowter of Galloways Accounting
Nicky Craddock, Investment Director at Cow Corner (Sussex’s premier private investment business) and I, ran through an introduction to the world of raising finance and the impact of investment.
Our focus was to explain what investors are looking for, the bearing and importance of the human relationships and, most importantly, how to achieve the best value for your business.
What are investors looking for?
To be your partner
This can be the one of the biggest personal development challenges for business owners who have spent years being the sole decision maker. Before you start looking for an investor, you’ll need to get comfortable having a genuine partner.
Investors will need to see that you feel comfortable being open and honest with them – good news or bad. Seeing the investor as a critical relationship in the development of the business, rather than just a source of capital, is essential.
To understand your story, your aims and your goals
To form that genuine partnership, investors will need to understand why you’re doing what you’re doing, where you’ve come from and where you want to get to.
Alignment of values and goals is everything. If your goal is to cash out chips in 5 years because you fancy retiring to Cornwall to write novels, there is no long-term benefit telling investors you want to float a listed business. Neither of these outcomes are wrong, and investors won’t be put off by either, but changing direction in the middle of a plan will cause issues.
Be brave. Be honest. Be open.
Sector and market focus
Individual investors and individual investment directors will have different backgrounds, and different understanding of sectors.
When meeting investors, be confident that they understand the dynamics of your market. Yes, you have to fit with their investment profile, but you have to be confident that this relationship will add more than just capital.
You don't need to be an expert in investment
We tend to get a lot of questions about the technical terms around investment. This is usually because business owners want to be able to speak the same language as investors.
My honest advice is don’t try.
Any investor worth their salt should talk in terms you understand (see above about relationship building!) Focus on speaking the language of your business. Investors will spend time listening to you and the shared language will follow as you learn from one another.
Key lessons we've learned
Bringing someone new into your business can be a really challenging step, but we’ve both seen time and time again that, done well, investment works.
We’ve seen people realise dreams of early retirement; a complete change in role from a 70-hour a week CEO to a 1-day a week Chairman; or to strap booster rockets to their business.
Whilst the outcomes have been completely different, in each case, the honesty over long term plans were there at the point of investment.
Ego is worth zero
Only once have I seen an investment go really badly. In that case, both the investor and the business owner had huge egos.
The communication between partners was extremely poor, and there was clearly a large amount of ‘head-in-the-sand’ over some central business issues.
Over the next 4 years, this critical business issue crippled the business, but was never addressed.
Talking openly about the issues that need attention, as well as the things that we’re proud of, builds a much more robust, saleable business.
Some technical bits
There are a huge range of ways to value a business. Some work on multiples of profitability, other businesses will sell for a function of their revenue.
Ultimately, much like buying a house, you and the investor will reach a point where both parties are happy that you’ve found the right spot.
Of course, market fashion and the amounts of investment in the broader market will play a part, but when looking at the investment, it’s important to have a mind on your end goals.
If you find an investor you get on with well, have shared goals, and can achieve your final outcome quicker - or in a way that delivers more overall value - the amount of cash you’re taking off the table now is much less important.
Your options & how to explore them
There are a whole host of investors out there. To find the right for one you, it’s important that you get out and network. Someone will know someone who knows someone, so the more ‘someones’ you speak to, the more likely you are to find the right partner.
Bankers and accountants are a good place to start, but there are a whole host of business investor groups. These are prime for a good LinkedIn stalk to see if you have any shared connections who would be able to introduce you.
Also, don’t be afraid to speak to people directly. If you’ve heard of a potential investment partner you’d like to speak to, call them. Most of the time, they’ll be pleased that you did.
EIS / SEIS
There are a range of tax reliefs available for investors who back eligible businesses – potentially up to 50% of any investment can be used to offset taxable income. So, depending on the investor’s personal tax status this may be a real sweetener to attract them.
I would always suggest getting clearance from HMRC on your EIS / SEIS status before launching a funding round, to make sure that you’re providing investors with certainty over any tax incentives.
Galloways help businesses and individuals manage their financial and compliance matters. They provide a full array of specialist accountancy, taxation, payroll, advisory and financial planning services – from complex group audits to sole trader accounts preparation. Find out more about Galloways on their website here.
Catch the Wave is a business support programme for anyone in the city who wants to launch and grow a business, offering affordable workshops, useful resources and mentoring sessions.
The programme runs until July 2021. You can see all upcoming Catch the Wave sessions, and sign up, through the Chamber website here.
If you want to contribute to the Chamber blog, contact us on firstname.lastname@example.org