I have been investing through the Firestarter fund for three months now and have nine companies in my portfolio. I have made investments ranging from £2m down to £30k and the variety of businesses and people that I have been exposed to has been enormous.
The one thing that has got my attention more than anything so far has been the founders and entrepreneurs that are inquisitive, that are interested in my background and expertise and how that might help them. For me, it is important that I can bring more than just money to the table.
So how should someone seeking investment choose the right investor?
It’s a difficult question to answer as only going for investment from people that will add some value to your business will reduce the amount you talk to and may reduce the chance of success. So, I don’t think that is the answer.
What I have seen the pattern of, is businesses splitting their funding requirements into two pots. Pot one is for people that want to give money and are not involved and pot two is for active investors. Investors that will help at the end of a phone, that may mentor, that may take a seat on the board or even place a senior exec on the Board. I like this process and this is why it works:
You can split the classification of shares
This is vital as it allows you to offer the investors that are bringing more to the party than just cash something additional for their efforts e.g. preference share. Preference shares normally rank higher than common shares when a business is sold or liquidated. This gives the active investors some control over risk
You can detail shareholder rights for the different class of share
This is great as you can allow preference shareholders the right to maybe attend bi annual board meetings, or give them the right to vote on certain management decisions or be involved in other management decisions. A common right given to preference shareholders, for example, is the right to provide further funding or the right to appoint someone to protect their investment on the board.
It allows you to show the active investor that you value their efforts above those that just provide cash.
I get tens of emails a day from people saying, “would you like to invest and mentor me” or, “I would like you to invest and become Chairman of my business”. These emails are ill thought-through and a waste of my time. The founders hardly know me other than what they have read online and, what's in it for me? Why on earth do I want to give up my time to help you?
When a founder reaches out slowly, with diligence and tells me that they have structured their company to provide additional value to those investors that can bring more to the party than cash, that they think I might be one of those investors and these are their reasons for thinking that and that they would really like to explore a potential relationship. It gets my attention right away.
So, my advice is simple. Structure the business correctly to give value to those you want on board, research your ideal active investors carefully, reach out to them and explain your diligent process for finding suitable active investors and then arrange to meet investors and give them your time. Might sound onerous but let me tell you something now. The days of sending a LinkedIn email saying do you want to invest; my company is going to make £100 million in three years and that the investment qualifies for EIS are going and almost gone.
If you want my money then show some respect.