INVESTOR READY = ACCURATE BUSINESS VALUATION
Article written by Nigel Greenway published in BusinessNews Nov 13, 2020
We have all seen Dragons Den, with fledgling founders pitching their business idea to a group of wealthy investors, each with a stack of notes sat in front of them, as they interrogate the presentations they listen to. But how close is this to reality?
The piling wads of cash may be for the theater of the show, but the thorough examination the investors take into assessing the opportunities they are being presented with is certainly accurate. After all, the founders are expecting the investor to part with their own money, to help grow their business, and so it is only right that the business would have the answers on hand, and the business case necessary to satisfy those questions.
So, what is an investor looking for?
An investor will want to know that the business has the growth potential to satisfy the return needed to not only recover their investment but to make them a profit. They will want to know that the business has unique values and will want to know how the figures stack up. There will be an expectation for the business to be armed with the following;
1. Financial Forecasts
It is essential that an investor is able to understand where you are today and what has got you to that point, however, it is a common mistake for founders to focus too much on the current and historical finances. Remember the investor is making an investment on where the business is headed and the growth plans the business has, which should take account of what the investment would enable the business to do post-raise.
The forecast needs stand up to interrogation, so it should be prepared by a financial specialist. It should summarize the picture of where you are today, but the main emphasis is to really illustrate what you can achieve post investment and by when. This could be a key element in satisfying the investor that their money should see a return, or a potential exit opportunity for them should that be what they are seeking.
2. Valuing a business
It is a common objection on Dragon’s Den, the founder knows how much money they wish to raise, but is reluctant to give away too higher stake in their business, so they set the equity on offer low – a decision that has no bearing on the valuation of the business. This is often met with questions such as “So how do you value your business at $20M, when your turnover is $50k”.
Having an accurate business valuation is an essential part of an investment raise and not getting this part right will almost certainly be a key issue that leads to an investor walking away. It is all well and good asking for a certain amount of money, but without knowing the true value of your business, how do you know what respective equity % you are offering in return?
Working with reputable financial experts, who are experienced and can give you an independent valuation is key to putting the investor at ease.
3. Pitching the business
You will need to present your business to the investor(s), whether this is in a darkened BBC studio, in a conference room full of people, online over Zoom, or even, and perhaps more commonly through a ‘Pitch Deck’ that the investor will read through at their own leisure.
Your pitch deck needs to be prepared to account for any of the above scenarios. Your ideal investor may not be in the room when you are pitching, so it needs to be as impacting when read alone, as it would be if you were presenting it in person.
Remember, it is more than just pretty pictures and buzz terms like disruptive, high growth, and game changer, it needs to illustrate your proposition, the unique aspects of your business, the market opportunity, what protection you have in place such as IP and patents, the credentials of the senior people in your team as well as that of your product or service.
Taking the three pronged approach of an independently verified business valuation, a well-prepared financial forecast that has been checked or prepared by a financial expert, and a comprehensive pitch deck that gives the full overview of your business, will give investors confidence in your proposition and will vastly increase the chances of a successful raise.
What do we do:
Malahat Valuation Group specializes in business valuation and real estate appraisals to owners of privately owned companies and their professional advisors.
Why it matters:
When business owners and their professional advisors need to sell, leverage or reorganize their assets, we answer the age old question of "what is it worth"?
We provide our clients and their advisors a piece-of-mind by providing professional valuations that stand up to scrutiny from lenders, the Courts and the CRA.
Malahat Valuation Group Inc.
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