When it comes to achieving rapid and sustainable scale, it can be a challenge for any business. Undoubtedly, investors play a vital role in helping businesses grow, so it’s important that small and medium-sized businesses understand exactly what these potential game-changers are looking for when trying to attract their attention.
According to a report we recently commissioned called ‘Scaling up: the investor perspective’, nearly half (46 per cent) of all UK technology scale-up businesses are actively looking to secure investment. Leaders of these high-growth businesses however, often struggle to find the right words when it comes to pitching for investment, often taking a blinkered approach with too much focus on the ‘product’ itself. Understandably, investors tend to think more holistically, taking a wider view of the business potential and its market, with a number of different markers front of mind – and not just financial.
The report, which includes views from over 100 investors from both the UK and internationally, highlights some of the disconnect that exists between the two sides, particularly over where priorities should lie when it comes to building or investing in a growth business. One of the biggest differences of opinion is the make-up of the management team.
Although both agree that a strong management team is critical to successfully scaling a business (96 per cent of investors said so, and 82 per cent of businesses agreed), there seems to be confusion around what businesses think investors are looking for in a strong management team, and what investors are actually looking for.
Investors seek ambition, drive and passion
The report showed that the essential characteristics investors are looking for are ambition, drive and passion – well-known characteristics of successful entrepreneurs. However, they also want to back management teams that can demonstrate resilience and adaptability, characteristics that are seen as vital for them to dealing with the inevitable bumps in the road along that scale-up journey. What’s slightly worrying is that only 58 per cent of business leaders thought resilience and adaptability matter to investors.
Clearly, investors want the full package. Whether this is a result of a technologist who has learnt to be a good business leader or a business person who can lead a team with technical capability. For those who are looking for funding, it’s important to demonstrate the ability to bounce back and adapt in the face of adversity. Investors are looking for well-rounded people capable of growing innovative businesses and achieving scale, and will frequently turn down opportunities if they cannot identify the right ‘soft’, but still as important personal skills within the management team. One UK investor we spoke to said, ‘building a company is very high risk and there is almost inevitably going to be a disaster along the way… and you want to know that the team will survive’.
Another element that seems to have got lost in translation between investors and businesses is the importance of communication. Only 46 per cent of businesses thought that poor or slow communication might be a reason for an investor to turn down an investment opportunity, where in reality 84 per cent of investors consider this a deal breaker. This valuable insight is obviously something that can be easily rectified by businesses looking to either win over or maintain investor interests.
Businesses and investors on the same page
One thing that’s clear from the report is that fundamental to building a successful relationship is that businesses and their investors are on the same page when it comes to how a company develops and grows – with sustainability a key ingredient to that success. Only if your business is aiming to grow sustainably, according to the investors’ feedback in the report, does it become a truly attractive and disruptive proposition with the potential to deliver far greater revenue, create more jobs and a greater return on their investment. If you’re not growing sustainably, then you either have to be prepared to find a way to change that or run the danger of your investment pleas falling on deaf ears.
If you are an ambitious business looking for investment, then it pays to take a step back and think about what it is investors are actually looking for. By understanding how their minds work, businesses can better work out when the time is right to look for investment, for example, who they should target based on existing portfolio companies and the kinds of qualities they are looking out for. This will help you win them over and build the right partnership for long-term scale-up success.
Nigel Walker is head of innovation lending at Innovate UK.