How to Secure Investment for Ambitious Growth
Identifying the Right Investors
There was a time when founders had more money offers than they could handle. Today, the scenario is different. The funding climate is tough due to higher interest rates, more costly borrowing, and a slower global economy. Even some well-known venture capital firms are laying off employees, which is quite unusual.
"People are still investing, but the competition for investment is fierce," says Anna Macrae, Senior Director at HSBC UK. To provide insights, we spoke to leaders of two successful UK tech companies, Speechmatics and Ultraleap.
Figure Out What You Need
First, get a clear idea of how much money you need and what you’ll do with it. Assess your financial health—look at your cash flow and debts. Tom Carter, founder of Ultraleap, advises looking for patient investment, which means funding that gives you enough time to build your company, even if this might mean accepting a lower valuation.
Patient Investment means money that doesn't require quick returns, giving you time to grow your business. For instance, if you're baking pies, you need time to perfect your recipes before accelerating production.
Katy Wigdahl, CEO of Speechmatics, also recommends being pragmatic. It may be wise to avoid high valuations that demand quick returns, as this could force a premature sale of your business.
Don't Underestimate the Search Phase
Finding the right investor is crucial. Desk research can help, but recommendations and professional connections are more valuable. Connections might come from your board, existing investors, or partners you're working with.
Frameworks for prioritizing investors can be helpful. For example, Speechmatics assessed investors based on financial, strategic, geographic, and cultural criteria.
Example: If you need funds for your home-based catering, seek investors familiar with the food industry.
Katy Wigdahl of Speechmatics built relationships with potential investors over two years, checking in regularly and engaging multiple investors by the time they needed funding.
Speak to Their Hearts Before Their Heads
When pitching, lead with your company’s story before diving into the statistics. Tom Carter mentions that people make decisions emotionally first and then justify them logically.
Example: When selling homemade cookies, share your passion and love for baking before stating profit margins.
Personalize the Pitch
Tailor your pitch to the specific investor. Explain what they can bring to your strategy and where the company could be in a few years with their help. Be honest about your weaknesses as this shows intellectual honesty.
Example: If a tech investor's strength is marketing, show how their expertise can help sell more of your tech gadgets.
Dolby, for instance, is an investor in Ultraleap, bringing not just money but also expertise in scaling companies that deal with middleware.
Prepare for Due Diligence
Expect thorough questioning from investors about your business model, competition, and expected returns. They may also do deep dives, like speaking to your customers.
Katy Wigdahl mentions investors talked to around 30 of their customers to understand why they work with Speechmatics. This can help investors understand the true value and potential of your company.
By following these guidelines, anyone looking to secure investment for growth can better navigate the process, understand the expectations, and successfully find suitable investors.
