" Poor investment materials are likely to end in failure."

Alexei Garan
Head of Business Funding, Shaw & Co

‍

“Poor investment materials” is undoubtedly the key complaint from both lenders and equity funders after they reject SME applications for growth funding, management buyouts and acquisitions. If a funder is not completely turned off from the outset, poor investment materials create the expectation that, not only does an arduous funding process lie ahead, but that it is also likely to end in failure, even if the business seemed initially attractive.

A decent corporate finance advisor will tell you what to cover in your investment materials, but here are the key things to remember:

1 - Know Your Audience

Equity investors are focused on the potential upside of your opportunity with risks being tolerable or manageable, especially when stewarded by a quality management team. Debt lenders, meanwhile, are defensive, looking for prudent credit proposals that will ensure they receive their interest and principal back on time.

2 - Transparency

Be it applications for debt or private equity investment, too often SMEs make the huge mistake of trying to hide risks to their business from their investment pitch. Not only does it seriously affect the ability to build trust (as we know, all companies face risks), it also gives the impression that they are unaware of the risks their business is facing, let alone how to mitigate them.

In being ‘risk oblivious’, rather than risk aware, your credibility is being undermined in front of potential investors. Perhaps most importantly, you cannot win. Lenders and investors will go through your company and find those weaknesses so you must get ahead of the game and be transparent. If a lender or equity investor spots a material risk you haven’t mentioned then it really is game over – there is no way back.

3 - Bluffing

Too many SMEs think they get funding and investment through sheer bravado and passion. Unfortunately, it never works. Enthusiasm and passion are vital but is your online superstore really going to take 10% of Amazon’s business in six months? Making wild claims without any evidence is no way to build the trust required to get a deal done.  

4 - The Financial Details

Numbers matter and must be thoroughly worked through and properly presented. The financial model makes for an integral part of the overall presentation of the business and everyone responsible for delivering the numbers must have a strong grasp on the model, including the CEO. Read more on the importance of the financial model here.

5 - Your Team

Too many companies fail to promote the quality, skills and experience within their management team. Even more companies fail to discuss the strength of their financial teams. This is a huge mistake as lenders and investors want to feel confident that, not only is your proposal credible on paper, but that you have the right people to make it happen.

6 - Incentives

Whether you are seeking funding or equity, investors will look for a balance of risk sharing incentives. When raising funds for growth or a management buyout for example, you are unlikely to be successful if you are unwilling to risk your own capital ahead of that of your funders. In all cases a funder is looking for an alignment of interests, on both the upside and the downside.

We work with growing UK SMEs and small-cap PLCs that have funding needs in excess of £2m and regularly approaching £100m. Our clients’ needs will typically be for sophisticated finance products such as cash flow based lending or private equity investments. Our value lies in helping clients access funding that relies on confidence in future trading and cash flows. For a confidential, independent, no obligation discussion on the funding options available click the 'Let's chat' button.