Published on April 8, 2014
ACCELERATE 2 Challenge Event Overcoming Investor Objection Peter Garnham 25 March 2014
Considerations • What Objections? • Provide Confidence • Establish the Relevant Criteria • Understand the Capital Differences • Fundamental Capital Criterion and Social Mitigation • Describe the Risk • Forecast the Total Reward • Improve the Opportunity • Start-up Difficulties • Attracting Investment
What Objections? • We don’t believe it! • It doesn’t fit our criteria well enough! • We have better opportunities for the use of our capital!
Provide Confidence • A Business Plan describes the future and how it will come to pass • The Plan contains some facts and usually a lot of ‘persuasion’ • Describes how it will meet the essential criteria as part of the objectives • The ‘business risk’ is that this view of the future will not be fully achieved (fulfilment and sales) • The reader will have their own level of experience and review the Plan in that light
Establish the Relevant Criteria • Each type of financial product and each supplier has different criteria for its availability • Products: – Equity (investment) – Debt (loans of some type) – Grant (non-repayable or subject to conditions) • Supplier: – Self, family & friends, ‘Business Angels’, crowd funding – Financial institutions, banks, venture capital funds – Public sector (EU, UK govt,) “He who pays the piper calls the tune”
Understand the Capital Differences • Capital is a necessary asset to be used in your business • Different types of capital products are suited to different stages of business development • Stages: – Idea, proof of concept (working up the plan) – Start-up (ready to start making sales) – Early stage (first 3 years of trading) – Developing (usually profitable and growing)
Fundamental Capital Criterion and Social Mitigation Expected Return % Risk 0 Risk-free Rate Risk v Capital Return Required Reward Capital Return Social Return X Increase Reduce
Describe the Risk • Business Plan to describe the opportunity: – Confirmation to yourself – Convince relevant source of capital – Show how the opportunity will meet the specific criteria • Provides confidence as to the level of risk inherent in the business • By ‘realistic’ assessment of the risk points and providing credible mitigation (in the view of the source of capital)
Forecast the Total Reward • Create realistic sales forecasts • Provide detailed financial projections • Financial – where does your business sit on the line? • Non-financial Social Impact • The non-financial allows the financial to be below the capital return line
Improve the Opportunity • How much reward is required in competition with other opportunities? • Financial: – Increase the price paid (% of equity given up, interest rate and fees) – Provide security • Non-financial wider impact: – Feel good factor – Personal employment – Third party employment – Social benefit – General economic development
Start –up Difficulties • Business Plan provides a very uncertain (but attractive) view of the future • Little capital already in the business • No trading history and little security
Attracting Investment • Potential capital return: – Innovative product – Large and expanding market (but this is not the sales plan) – Ability to defend market position once achieved (IP) • Reduced risk: – An experienced management team – Management that has started a successful business before – Experience was gained in the same industry • Clearly defined and high social impact
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