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What do SMEs need to consider when seeking equity investment?

3 people in office discussing Investment readiness

There are a number of factors that investors look at seriously when assessing a business pitch for investment. Businesses would be wise to focus on ensuring that before approaching potential investors, they have a clear, defined in-depth understanding of market conditions and the target market, their competitive advantage and value proposition, but that’s not all, they need to show.

  • An experienced management team: Investors want to see that a business has a diverse and experienced team that has the skills, expertise, and passion to execute their vision and grow. They will look for experience within the industry – a proven track record, to see if an SME has had success beforehand, and is ready to drive the new business. It is always worth considering that as much as investors are putting their money into a business, it is the people they are really investing in, so having the right team in place that gives reassurance is critical.
  • A professionally researched and realistic business plan: An SME should show that they know the market they are operating in and the economic factors that can affect them. Investors want to see that there is a large and growing market for the product or service, or a niche market that is untapped. The SME would need to prove that they have a clear understanding of the prospective customers’ needs and pain points, and a way to deliver against these.
  • A unique brand positioning and competitive edge: Investors want to see that an SME has a unique and compelling solution that solves a real problem their customers have, and that they have validated the product or service with customer feedback and traction. Investors want to a see a strong competitive advantage over rivals, and a defensible position in the market. This could be based on a technology advantage, brand stand-out, the network, a patented intellectual property, or customer loyalty advantage.
  • Realistic, detailed financial projections: Investors want to see a return on their investment, so they will need to know that the business has a viable and scalable model. They will need to look at gross profit, revenue growth, monthly recurring revenue to see if the SMEs revenue is consistent, as well as net income, customer acquisition numbers and liquidity. Investors want to see that a business has a clear and sustainable way of generating revenue and profit, and that there is a realistic cost structure. They will need to see a solid sales and marketing plan, for both short and the long term, with a clear ROI.
  • Social or environmental impact: Investors may want to see that a business has a positive social or environmental impact, and that it can be measured and reported. This is especially important for impact investors, who seek both financial and non-financial returns.
  • An exit strategy – They will want to know why the investment is needed, what the plan for the investment is, when they will see a return on the investment, and more importantly what the exit strategy is. Will the SME buy them out, could they sell to another party, although the most common exit is via a trade sale.

Exemplas and investment readiness

Exemplas has a team of expert investment readiness specialists who provide in-depth advisory support to Innovate UK Business Growth clients who are seeking to access finance to accelerate their business growth and scaling journey. Exemplas investment readiness team offer this service to innovative businesses in three regions. Support includes:

  • Assessment of the strengths and weaknesses of the businesses’ investment proposition using a benchmarking tool. This benchmarking provides a useful gap analysis and identifies areas that the business needs to focus on to become investment ready
  • Advisory support, to understand investment options (grant, loan, equity). Help develop investment proposition and collateral.  To help with refining and developing the businesses investment pitch including feedback and review
  • Training to develop critical collateral such as a business plan, pitch deck, financial model, and other documents and information required for funding.
  • Linking with relevant investor networking opportunities including arranging pitching events that enable businesses to pitch directly to a selection of curated investors.

Over the last year our investment readiness specialists have delivered direct support to 826 businesses to help them become investment ready in turn helping them raise equity totalling £106 million.

Our investment readiness experts have an in-depth understanding of the funding landscape.


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