How to Make Your Business Investor-Ready
When it comes to raising capital for your business, everyone is familiar with the general checklist of exploring different funding options, presenting a persuasive pitch deck, and being clear about your business model. But to be truly investor-ready, leaders should also be focused on finance, risk, and mitigating negative impacts. Investors want to be confident that you know your numbers and can effectively navigate your business around the what-ifs.
Have you stress-tested your numbers? Do you have strategies for how you’d operate your business in different scenarios? When an investor asks you, “Have you thought of this?” You should be able to say, “Yes, I have!”
With those thoughts in mind, the real question that you should be asking is: Where can you build resiliency within your business?
What It Means to Be Investor-Ready
To be investor-ready is to demonstrate your preparedness for various scenarios and how that would impact your business. This requires identifying potential triggers for negative and positive scenarios, building robust cash flow models, and incorporating risk management strategies to show investors that, while you need them, you won’t be relying on them to get your business through a downturn.
The better your financial mitigation strategies, the more investors you’ll attract. Since being in a constant cycle of raising capital is expensive and time-consuming, being able to show that negative scenarios won’t adversely affect your cash flow demonstrates the resiliency and patience of your business. Building patience into your business model addresses what happens if you can’t go to market or there’s a market correction making it harder to raise money.
Heading Into a Market Correction
Market corrections are a broad decline in major market indexes of 10% or more, and they're inevitable within the stock market—happening every few years. Put in the simplest terms: market corrections happen when it's decided that capital is overvalued in a certain sector, so the money moves to another sector that is undervalued.
Unlike the short-term overreaction that the Covid-19 pandemic caused, market corrections cause ripples of lasting impact and can sometimes take 7 to 15 years of adjustment.
For example, mining went through a market correction in 2013 when the industry saw profit fall by 72% to $20 billion—the lowest it had been in a decade. During that time frame between 2013–2015 when mining hit its low, it was incredibly difficult to raise money, and it’s been hard for mining projects to get funding until this year. Where was that money going then? Into the technology industry. Generalist investors are attracted to whatever is undervalued and with significant upside potential during market corrections, and their money goes from sector to sector.
So, the reality is that if you have a good, sound cash flow model and resilience built into your company, you can be patient to attract money, deploy it, and see returns. Overall, this equates to being in good shape when a market correction affects your sector.
Building Patience Into Your Business Model
Building resiliency and patience into your business model will look unique to everyone, and it requires knowing your nice-to-haves versus your must-haves. During cash flow crunches, you need to ruthlessly weigh what is critical and where there are excess expenses.
Being prepared for anything means modelling out the worst-case and best-case scenarios. In best-case events, unbridled growth, especially during a hot market, can be a huge risk and lead to poor decisions, such as when hiring. The biggest concern, though, is considering what happens within your business when you start to run short. In turn, all of this risk planning circles back to knowing and diligently monitoring your leading indicators that will trigger a growth or decline scenario. Planning for “what if” scenarios will enable you to confidently manage your business to avoid the negative impacts to your business when the scenario becomes a “when.” Building resiliency into your business model—being prepared for negative scenarios—will give investors confidence in you.
Some key points to help you prepare for those what-ifs and stay ahead when the market is changing or has changed is include:
Getting clear on your current value proposition
How is our business relevant to our customers?
How are we unique to the marketplace?
What makes us the right business to offer this product/service?
Revisiting your market and operating strategy
How have our target customers’ needs changed?
How have our competitors changed their businesses?
Do we still have the capabilities to deliver our product/service more effectively than our competitors?
Redefining your value proposition and operations
What are the key capabilities required for our business to have the most impact on customers' needs?
How much should I invest (time and money) compared to my competitors into those key capabilities?
What hard decisions do I need to make on spending allocations?
What are the key success factors/measures to my strategy?
What are the potential risks and mitigation strategies for my plan?
The bottom line for preparing your business to be investor-ready is being crystal clear on the changing needs in your market and reflecting that within your business modelling. It’s critical to find the competitive edge that will sustain you through any downturns, be ruthless about the must-haves within your business, and don’t let the nice-to-haves distract you. Do you have the money to invest in something that could be a 10-year payoff if you’re living off of investment cash flow? Focus on what will make a big impact on your business, and let that guide the rest of your risk management strategy.
Once more: When an investor asks you, “Have you thought of this?” You should be able to confidently say, “Yes, I have!” It’s a big job to map out, but well worth the effort! Let’s get started on your strategy.