by David Pattison, author of “Money Train: 10 Things Young Businesses Need To Know About Investors“
2021 should be a more settled year for young businesses looking for money. But raising money will still be a lengthy and serious process. Good businesses and ideas should enter the market well prepared and confident. Risky businesses will, at best, attract risky money.
As with all sectors the investment market has been redefined by the global pandemic and there are some emerging trends that young businesses should take into account when preparing to raise money.
Here are 3 things to consider when looking for investment in 2021.
1. Be the best business you can be.
Investors are looking harder and deeper into prospective investments. Investment seekers will need to present themselves as the best businesses they can be. Showing that they understand all aspects of their company and their markets.
Some or all of the following would describe a good business with proof points:
- A well balanced and appropriately experienced team.
- A team with a shared view of the future.
- A well-defined market opportunity
- A proof of concept (does it work?).
- Some revenue (is someone prepared to buy it?).
- Repeat purchase (is someone prepared to buy it twice or more?).
- A thorough understanding of the competitive set
- If appropriate, some IP protections.
- Has good financial disciplines.
If some of these points describe your business, then you are well prepared for the questions the prospective investor will expect you to answer. You should have the confidence to not just take the first offer you get but have a look around and try and introduce some competitive tension into the process.
2. Accelerating your business in the pandemic/post pandemic.
For a good number of start-ups and young businesses, the pandemic will have offered a real opportunity for acceleration. It may have required a pivot in the business to get there by either changing the shape of the offering or the way that the offering is delivered.
Whether your target market is consumer based or business based, their changing habits will have offered upside opportunities. Post pandemic lif will not just ‘go back to normal’. The following sorts of questions would need good answers to a potential investor:
- Will remote working be significant to your business?
- Will online retailing help you grow?
- Will changing travel patterns affect your sales?
- Will selling remotely be the future of your business?
Why is the pandemic effect important if you are looking for investment? Because if the performance of your business has changed significantly through the pandemic then you will have to be able to convince investors that this change and increased business is sustainable once the market returns to something like normality or a new normality. Investors will look to downgrade current performance if they are not convinced on the sustainability of the recently acquired growth. This will be done through lower valuation multiples or downgrading revenue achievements, or both.
This will be one of the major trends in fund raising processes in 2021.
3. Sustainability and Diversity & Inclusion (D&I).
The big cultural themes of 2020 are now moving to the centre of the investment world. Interestingly these themes are important for both investors and young businesses.
From the investors perspective young businesses looking for investment, will need to have a well-developed view, and set of policies, beliefs and credentials, around the following:
- How sustainable the product/service is?
- What effect it has on the environment and what is being done to improve the environmental effect?
- What are your employment policies around D&I and equality?
- How does your culture reflect this?
Being a new business will be no excuse not to have these in place. It will also build a positive company culture that will be attractive to prospective employees.
On the other side, founders and CEOs of young businesses are being more specific about understanding the credentials of the investors they take on board. The potential company the investors are keeping in their portfolio is increasingly important.
In 2021 there will be an increasingly two-way street on understanding of policies and credentials around sustainability and D&I. Investors will expect answers and an increasing number of young businesses will be confident enough to ask the same questions of the potential investors. Good luck!
David Pattison left school not knowing what he wanted to do. In 1990 he started his own business with two partners that was sold and became part of the Omnicom Group. PHD is now a worldwide brand in eighty markets. He is author of “Money Train: 10 Things Young Businesses Need To Know About Investors“.