There comes a time in the life of most entrepreneurially-led, early stage companies where you start to imagine how much faster you could scale the business if you could attract growth investment. I’ve observed a number of organisations as they approach this critical stage in their evolution, and I’d like to suggest 5 things that you might want to take into account in your own search for growth investment…
This is in no way intended to be an exhaustive list - simply to highlight a handful of factors that seem to have the potential to make a real difference during this critical phase in any company’s development.
1: Involving an Investor Organisation Changes the Dynamics
Firstly, you’ve got to acknowledge that involving professional investment organisations - and in particular Venture Capital or Private Equity firms - will inevitably change the dynamics of your business. Your investors will come to the table with expectations regarding their return.
Keeping them happy and onside may end up consuming a significant amount of your time and could force you to change the way in which you determine the priorities, strategies and tactics for the business. This may be no bad thing: but you need to consider the consequences carefully.
2: Identify Potential Investors Based on Self-Similarity
Contributing capital is only part of the role of an investor: when considering who to approach, you should think about the relevant experience they can bring to bear. Take a look at their existing portfolio. This is not just about their industry or market experience - although this is often invaluable.
What about the characteristics of the companies they have invested in - do they seem to have the same ethos and values as your own organisation? Do they have similar go-to-market approaches? Is there evidence that your potential investors appreciate how your chosen business model works?
3: Solve a Critical Problem
Your pitch to your potential investor shouldn’t just be about how clever or innovative your solution is; any thoughtful investor will want to know about the problem you solve, and whether the problem is significant enough - and the market large enough - to fuel a high-growth business.
And when you size your potential market, never, ever go down the “how difficult can it be to get a 1% share of a huge market?” route. Clearly define your target market, prove that you understand its dynamics, and show how you have the potential to dominate it - and expand from there.
4: Cut Out The Hockey Stick in Year Three
I’ve lost count of the number of revenue projections that show a remarkable uplift in sales somewhere around year three. Investors are wise to these “and then a miracle happened” projections, and are inclined to discount them - particularly if there’s no obvious underlying change in market behaviour.
Cut out the hockey stick. Focus instead on showing how you have carefully modelled the behaviour of your markets, and the consequences of the sales and marketing actions you will be undertaking.
5: Prove That Your Business is Scalable
Which leads me neatly to the last observation. In addition to wanting to understand that the problem you are solving - and the market you are addressing - has real potential, your investors will need to be convinced that you have the basis of a scalable, repeatable and predictable business model.
You need to be able to show them a proven process and to be able to prove how increasing resources will result in at least a linear improvement in performance. Being able to show clearly defined and provably effective sales and marketing processes is critical here - but you also need to give investors confidence that you can attract and induct the right additional resources.
Your ability to identify and recruit the right sort of employees and - where appropriate - to develop effective business partnerships is often a critical factor in leveraging the investment and scaling up the business. How can you show a potential investor that you’re going to invest their capital wisely in these critical areas?
Making Growth Investment Work for Your Business
I’ve only scratched the surface here. There are many other factors involved in attracting the right sort of growth investment, through the right sort of investors, and applying the resources in a way that stimulates the right sort of returns. What’s your experience? What else should high-potential companies consider when thinking about how best to fund the resources required to realise their potential?
One Last Thought
You can learn a lot about the foundations of truly scalable businesses from observing the winning habits of today’s top-performing B2B organisations. If you haven’t already done so, I recommend that you spend a few minutes profiling your organisation against our 20 best practices checklist. Even if you’re not looking for growth investment at the moment, some of the ideas might help you to drive your own business forwards.