Guide to getting an investor

If someone has a good business idea but lacks the capital to implement it, they can realize their business plans by finding an investor. Fortunately, there are people and institutions willing to spend their money on an interesting project that they believe has the potential for business success and profitability. Investors are looking for creative people with an interesting idea and who are consistent in pursuing their goal. Below, we present the requirements set by investors and practical advice on what to do to obtain financing for an interesting idea.

Firstly, it is important to differentiate between finding capital for a new venture, finding an investor or partner for an existing business, and preparing your company for a complete sale.

New ventures and companies

In order to interest the right people with capital, you should prepare an initial business plan, i.e. present documents concisely describing your business concept (if not prepared properly, they may discourage people from your idea during the first contact) and presenting the idea itself, as well as individual elements such as a description of the project, the funds needed to achieve the goal, a cost estimate, a description of the staff and marketing activities, as well as financial forecasts. In order not to ruin your chances at the very beginning, it is worth spending enough time on preparing the documentation or taking advantage of the offer of specialized companies providing this type of service.

A proper description of a business idea should be concise in terms of volume, comprehensive in terms of facts describing the venture, and at the same time should attract the interest of the reader (which, contrary to appearances, is not an easy task, because for them it is just another business plan to read). Often, putting an idea on paper allows you to notice previously unnoticed threats or deficiencies in the business concept, as well as to present the potential of the company in relation to the market in which you want to operate. It is important to remember that hardly anyone will invest in a project with a potential rate of return of less than 20-30% per year. So if we expect support in the amount of PLN 1 million for 50% of the shares, and we estimate that our entire project will be worth PLN 2 million in 3 years, the chances of success in raising capital are slim.

The documents, i.e. the packaging of our project, are obviously important, but not the most important factor influencing success in talks with funds or business angels. The business itself is key – the market chances of its success, the risks associated with implementation, capital intensity, as well as – which is often underestimated – adequate and committed human resources (often more valuable than the idea itself).

Investors often say that the market lacks not so much interesting projects as people capable of managing them properly. Therefore, it is worth describing the experience of the management team and the arguments that the team will be able to manage the project effectively, consistently implement the business objectives and achieve financial success in the project documentation.

Investors can be found through online advertisements, applications to venture capital and private equity funds, as well as through private business contacts.

After convincing an investor of your idea, remember to draw up a suitable investment agreement and to structure the entire investment process so that each party is protected in terms of the subsequent distribution of profits.

Finding an investor or partner for an existing company

The dynamic environment of a company means that the need for increased business financing may arise at various stages of its development. Whether you have exhausted your investment credit financing options or are undertaking a capital-intensive project, finding a strategic investor or selling a share of your company to a new partner is often the best solution.

An external investor can be a viable alternative to other methods of capital procurement, and often an investor with more experience and resources also brings valuable added value to the company.

Growth financing mainly concerns companies that need capital to implement their business plans, e.g. to enter new markets, expand their operations or acquire another company. There are a number of channels on the financial market through which a company's growth can be financed, the most common of which are:

• Acquiring a strategic investor,
• Selling part of the shares
• Venture capital and private equity funds,
• Private loans
• Issuing bonds or shares (in the case of joint-stock companies and stock market flotation)

 

Selling a company or finding an investor requires an appropriate investment memorandum and often a reliable valuation of the company. A company valuation analysis allows you to determine the real price that an investor entering the transaction process would be willing to pay for it. The valuation of the company in terms of the value of its assets and the potential to generate future profits is also the starting point for negotiations with the party interested in the acquisition.

An important aspect in the preparation of an appropriate investment memorandum and arousing the interest of a potential investor is also taking into account the situation in the industry, analyzing the competition and preparing reliable financial forecasts, which is often decisive for the attractiveness of a given company from the investors' point of view.

Investors for the development of your own company can be found through online advertisements (link to the tab “I am looking for an investor/partner” on the platformainwestora.pl portal), applications to certain Venture Capital and Private Equity funds (link to the tab “Venture Capital/Private Equity funds” on the platformainwestora. pl), as well as through private business contacts with investors who have free funds.

 

Selling a company

Often, entrepreneurs for various reasons (most often due to age, health or financial problems) want to sell the entire company and “get out of the business”. In the case of a plan to transfer the company to a new owner who will ensure the continuation of the business and its further development, a very important factor is the proper preparation of your company in order to find the right investor.

Although every company sale is unique, there are several common elements in the process:

• Preparing the company and the owners for the sale,
• Preparing the transaction documentation, such as the Investment Memorandum and often the company valuation,
• Preparing a list of potential investors and presenting the transaction documentation,
• Due diligence,
• Investment agreement and sale of the company.

 

The most common company sales transactions take place in the following transaction scenarios:

• Sale to a strategic investor - the buyer is a competitor or a company operating in a similar business segment that wants to expand its business activities,
• Sale to a financial investor (private equity funds, individual investors) – the purchase is made by investors looking for profitable investment opportunities, usually with the intention of developing and subsequently reselling the company.
• Management buyout – the company's shares are bought from the current owners by the key management team.

An investor who wants to purchase an entire company can be found through online advertisements, applications for certain private equity funds, as well as through private business contacts with investors who have free funds.

In order to successfully sell your company and obtain the desired funds, we recommend that you familiarize yourself with these types of capital processes or use the services of consulting companies that specialize in handling company sales transactions and advise on how to find the right investor and carry out the transaction in a comprehensive manner.