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The Difference Between a Business and an Investable Business

Rule 101 of business is that before you can accumulate, you firstly need to speculate and even a small scale business will require at least a little bit of startup financing to get moving or to take it to the next level. Whilst using savings or borrowing from banks are both options, sometimes a business just needs the kind of capital that only investment can bring.

In this little startup funding guide, we are going to look at how to make your business investable. We’ll run through what investors are looking for in a business and offer some ways to help you turn your business into an attractive prospect for both angel investors and Venture Capital.

Basically, if you have ever found yourself asking  “how to improve my chances to get a business loan” or “how to improve my chances of funding” then keep on reading.

Startup Financing

Let’s be honest, some businesses have a much easier time in securing funding than others. Silicon Valley companies for example, rarely struggle to find a few million bucks of investment owing to a mix of networking connections and an abundance of local investors desperate to back the next Netflix.

Likewise, accomplished entrepreneurs who have a proven track record of success will have an easier time in getting money together than an unknown entity.

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However, the reality is that most start-ups and growing businesses struggle to raise capital. Most founders quickly burn through their personal savings and are usually forced to turn to the banks for additional business funding.

However, any new business headed by an untested CEO will usually only find bad credit business loans available to them with high-interest rates far in excess of the inflationary market rate.

High-interest borrowing is very risky for any young business as the lenders in this sector are not known for their patience, and will quickly begin putting pressure on a business if the high re-payments are not fully maintained.

How to Improve My Chances to Get a Business Loan

Whilst all business borrowing comes with inherent risk, some lenders are nevertheless much better options than others. In order to improve your businesses chance of securing a loan at a  reasonable rate with a reputable bank, there are a few things you can do;

1. Get Your Books in Order.

Before you begin reaching out to lenders, make sure to get your balance sheets in order and fully up to date. Also, ensure that your accounting is crystal clear so that the bank’s loan manager can easily understand what everything is.

2. Check Your Credit Score

Get an up-to-date credit report for both yourself and your business  If the report indicates that the score could be improved, consider holding off on the loan for a few months to try and boost it.

3. Research the Banks

You really do need to choose your business loan provider carefully and that includes researching their lending criteria. The good news is that most banks actually publish quite a bit of info about their lending policies online, so do your homework and try to identify which banks are likely to say yes. Another place to get info is by visiting business owners’ forums and online networking groups.

How to Improve My Chances of Funding

Whilst business borrowing from banks is very common, experienced & savvy entrepreneurs know that it should be avoided wherever possible, and one way to avoid being at the mercy of the banks is to make your business investable.

How to Make Your Business Investable

Whether you are seeking investment from an Angel Investor or a Venture Capital Group, there are some signs, qualities, and hard-cold facts that all investors look for.

Have a Great Team

All investors want to see that a business has a great, core team who work together effectively and crucially, who complement each other’s skillsets.

Whilst the figure of the visionary lone founder/CEO looms large in the mythology of modern business, the reality is that a one-man band is a single point of failure.  Therefore not having a good team represents a risk that can deter investors.

Having a great team also proves that your business can attract and retain talent which says a hell of a lot about it and about you.

Be in a Big Market

Investors are usually looking for BIG returns and in the case of Venture Capital, they are looking for biblically epic returns. Therefore simply being the best in your niche, or growing into a giant fish in a small pond, is unlikely to impress them.

Instead, investors are looking for a business that can compete in a huge market or a market that has huge growth potential (such as the way the cellphone market exploded in the early 2000s).

This brings us to our next point.

Be Scalable

Your business needs to be scalable if it is going to attract investors.

A scalable business can simply build on what it is and quickly increase revenues without too much in terms of further costs. Some business models and even business areas are ideal for scaling whereas others are not.

For example, Ikea is scalable but luxury artisanal, handmade furniture is not. Likewise, a Michelin-rated restaurant cannot really be scaled, but a meal kit company using that very same restaurant’s recipes, absolutely can.

Have a Clear Outcome and Exit Strategy

Investors are usually not looking for long-term relationships. Instead, investors usually seek medium-term returns and then move on to another opportunity.

You, therefore, need to be clear from the start what the final outcome should be, what success will look like, and what the exit strategy is. For example, are you intending to sell the business in x number of years?

Or will you be planning to buy out the investor further down the line and regain full control of your business?

Of course, the investor may have ideas of their own about outcomes so being ready to compromise will also help you secure an investment.

Final Thoughts on This Startup Funding Guide

Whilst obtaining startup financing can be tough, there are always ways for determined entrepreneurs.  Hopefully, this mini startup funding guide offers at least some idea of how to make your business as investable as possible.

Whether you are hoping to improve your chances to get a business loan or to improve your chances of funding,  we wish you the best of luck

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Some other articles you might find of interest:

Make your business rock with these business plan writing skills:

Startup’s Guide to Write a Business Plan

Would you like to know how investors value a startup?

How Do Investors Value a Startup?

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