Becoming investor-ready

Investor readiness is the process of getting your business to the point that equity investors are willing to invest in your business.

What you need to become investor-ready depends on several things:

• The nature and stage of your business
• The amount and type of equity investment you’re seeking and
• Who you are seeking investment from

When should I start thinking about making my business investor-ready?

You may have thought about debt funding to start or grow your business, but the banks probably won’t lend to you because you’re not profitable. Or you may not have a long enough trading history as well.

You may have already received some grant funding, but that money has only taken you so far.

Ideally, you’ll be at a stage where you're looking for more funding and want to bring someone on board with expertise as an investor.

Equity investment can be a way for your business to achieve these goals.

Qualifying for equity investment

To qualify for equity investment, you’ll need to meet some requirements:

Your business ambitions

You should have big ambitions for your business to attract equity investment. Those who invest in your business would want to achieve good returns, in return for the risk they are taking on.

Your business growth

Potential investors will be interested in how your business would cope with an increased or expanding workload. You would need to demonstrate how easy it would be for your business to grow its revenue or number of customers.

Your exit strategy

Equity investors would want to understand your exit strategy. Most of them will want to realise their investment within five to seven years. This is usually achieved by selling the business. It can also be done by changing the shareholding structure from a private business to ‘plc’ status.

If you can't foresee a point when you'll be happy to do this, it would be difficult to attract investors.

Your checklist to becoming investor-ready

For your business to be investor-ready it must meet several requirements:

A business at the right stage

Your business needs to be at a certain stage in its development. Its potential should have been validated in some way. Early success and validation looks very different in different sectors. For some businesses, this can mean one of following:

• Achieving successful prototypes
• Getting official recognition by a trade or regulatory body
• Convincing a large company to test your product for free
• Proving that an early version of your technology can function

In some cases, investors will probably want to see evidence that your business has some traction. This could be revenue growth.

Know whether HMRC would give you advance assurance that your investors would be able to benefit from tax reliefs. These tax reliefs come under the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS). SEIS is a generous scheme for investors, and your business will probably be eligible if it has been trading for under two years.

The right preparation

You're looking for someone to build a long-term relationship, so you need to have the right mindset when approaching potential investors.

Some investors will want a detailed plan mapping out which financial milestones you expect the company to achieve over the following five years.

Your business plan will need to show what you have achieved so far and how you plan to grow your business. You need to prove there is a sizeable market for your product and show your exit plans clearly.

Read our guide to using a business plan to raise finance  

Depending on the nature of your business, a development roadmap can also be useful. A roadmap shows the investor where and when their money will be spent. This roadmap should detail each key milestone the business has to reach, the outcomes/benefits of these milestones, and the timescales involved.

Getting that first meeting with the investor is key and it often helpful to have a pitch document. Your pitch needs to have enough detail to make investors quickly understand the road to growth, profitability and exit.

Fundraising amount, type and terms

Be clear on the amount of equity investment you need and who you are going to approach. This can range from family, friends and angel investors for smaller amounts to venture capitalists for larger sums of investment.

Think about how much of the business you are prepared to sell and at what price – this will determine the company’s valuation. This doesn’t need to be included in your business plan or pitch, but you should think about this before entering into discussions with investors.

Also consider whether you can invest any of your own money alongside new investors. This would show your commitment to the business and to them.

Find more information on equity investment terms in the Securing equity investment guide