Piers Millar is a private investor who lives in Somerset. Contact with the 247 investor group can be made through your AG adviser.
‘Marry in haste, repent at leisure’ goes the proverb and while the typical investment relationship is unlikely to reach its golden or even silver, anniversary it could well outlive the average Hollywood film star marriage so it is definitely wise to choose an investment partner you like!
Who are investors?
Investors typically fall into three main categories; angels, private investors, and institutional investors, with each group offering a very different proposition to the owner.
Angels and Institutions
Angels traditionally might provide £500k or so of investment, but are usually investing as part of a group of investors where the decision-making process might be informal and the final decision be based as much on passion for the underlying project as the hard facts. As a result, this can be attractive to early-stage businesses which are still proving their business model and revenues. More recently, crowdfunding has aggregated many of these investors and will often have a fixed due diligence process but, generally, will not offer any support for the business following the investment.
At the other end of the spectrum, you have institutional funds looking to invest their own or third-party money. As such, they will typically offer larger investment amounts but have a clearly established set of criteria for the type of the business they are looking for and a need to follow a rigid due diligence process before making that investment. Post investment, their approach can be equally varied with some firms remaining fairly hands-off, while others may offer up operating partners who have been business leaders in similar sectors.
Between the angel investors and the institutions, you can find private investors. They typically invest in businesses alone or in very small groups where they can have a close relationship with the management and business, going forward. Private investors may come from working in industry or finance so offer a wide range of skills alongside their investment (and no two investors will offer the same skills). As such, their decision-making process may also vary significantly but would typically be less structured, both in how they invest and how long for, than an institutional investor but more detailed than a group of investors, reflecting the greater time, effort and resources they are likely to be committing to the business.
There are few groups of private investors but one such local group is the 247 Club based in Sherborne, where potential investors are able to invest together, sharing their experiences as non-exec directors and running businesses. Private investors will have many different criteria for judging businesses but all usually look for established businesses which are cash generative. Without the need to return money to third-party investors after an agreed time (as with an institutional fund), they may also be able to invest for much longer periods, whether 5 or 15 years, while working alongside the management team to help grow the business.
So, no investors are ever likely to be the same and it is crucial, as an owner, to meet plenty of potential investors to understand the different options available to you. The more time you have to get to know different investors the clearer the best option will be. It is an exciting time and, before meeting any investors, try to have answers to these questions:
- How much new money do I want?
- What do I want the money for – a new factory or an acquisition?
- Do I want all the money now or over a period of time?
- Does the investor have follow-on capital to support the business in future, if needed?
- Why should an investor invest in my business? How does the business make money and what makes this sustainable?
- What is my plan for the business over the next 5 years? How will it grow?
- How long do I want an investor for and what is my preferred route to exit them (or me)?
- What is the business valuation and why would that be attractive to an investor?
- Where do I fit into my 5-year plan, or will succession be an important topic to resolve?
- What support do I want from an investor beyond the money?
- How much control, whether financial or operational, am I prepared to concede to the investor to achieve that?
- Is there a tax-efficient structure, such as EIS, for the investor to invest into (but this is most relevant for angel investors)?
- And, most importantly, do I think I can work with this person and how much contact do I want with him/her? How much time can they devote to my business and will they understand local issues?
In summary, therefore, do I think I will be supported, challenged and even enjoy working with this investor?