Three tests to see whether your start-up is investment ready

What you’re giving away in return for their investment is typically shares in the business. Sometimes convertible notes are used for short term funding arrangements or where it’s difficult to determine the value of the business. Convertible notes earn interest on your investment until the notes expiry date when an investor may ask the money be returned or converted to shares in the business.

In many instances you may also be asked to provide a level of information or control of the business, in the form of a position on the board, management team or say in the decision making process within the business. Many investors also require regular information and reporting about the performance of the business.

Whatever option you choose, you should be planning your investment strategy to match your business strategy at the outset.

As investors often invest in a particular stage of the business cycle, you’ll often find many investors will invest in one but not necessarily subsequent rounds to match your requirement, making it important to plan early.

What professional investors often can do though is introduce you to their networks of other investors and opportunities you can tap into. You should also consider your own networks and personal contacts, formal angel investor groups, associations like the Australian Association of Angel Investors, AVCAL or online referral sites such as Angel List.

3. Have a compelling pitch

Once you know you’re the right type of business and have a plan to pursue investors, you’ll soon have to pitch your business. A solid pitch should succinctly incorporate the following:

• The problem your company solves.

• The unique attributes of your solution.

• How pressing solving that problem is for your potential customers and the size of the opportunity to do so.

• How you intend to reach your customers and how much money you will make.

• Your progress so far, what you’ve tested and accomplished, any you’ve revenue generated and how you can leverage that to support your claims in the areas above.

• Who your founding team are, what their past experience is and what they’ve accomplished, to give investors the assurance you’ve chosen the right team to deliver results.

• What you’re asking investors for, what their return will be and when. As previously mentioned they want a clear path to a liquidity event that will provide them with their cash return.

• Finally, be clear and confident about your numbers. Not all entrepreneurs are confident when it comes to managing and talking financials.

However, given financials are what matters most to investors you need to be able to comfortably address how you’ll make cash, when you’ll break even, your knowledge of market statistics, growth projections, business value growth expectations, cash and resources you’ll need to achieve your goals.

Start-ups can outsource the expertise of financial management and forecasting to their accountants, who should help you to understand and discuss the detail with potential investors.

Marc Peskett is a Director of MPR Group, a Melbourne based business that specialises in providing business advisory, tax, outsourced accounting and grants and funding services, to fast growing technology and innovation businesses.

You can follow Marc on Twitter @mpeskett