Going for growth: Five top tips to help SMEs get investment ready

John Garner, Head of New Business at leading mid-market private equity firm LDC, shares five top tips to help SMEs attract investment and build scale as they recover from the effects of Covid-19.

Going for growth: Five top tips to help SMEs get investment ready

John Garner, Head of New Business at leading mid-market private equity firm LDC, shares five top tips to help SMEs attract investment and build scale as they recover from the effects of Covid-19.

Partnering with a private equity investor is a proven method to help successful businesses grow and create value. The support of a private equity partner can help SMEs unlock new routes to growth, such as acquisitions of complementary businesses to expand their product lines, or by helping a business expand internationally. They can also help management teams accelerate organic growth by winning new contracts or through entering new sectors.

In principle this sounds like an easy decision, bring on board fresh capital and expertise to grow quicker and meet your ambitious targets; but in reality, choosing the right partner is critical to the success of the investment. You need to find a partner that is the right fit to support the growth of your business. It’s a two-way relationship, so you should get to know investors and ensure that they can get under the skin of your business to maximise the success of a potential partnership. 

Before exploring private equity investment however, management teams should consider how to prepare their company to attract the right investment partner that can help them to achieve their goals. Through LDC’s 40 years of experience of successfully helping ambitious management teams to grow their businesses, we have found that there are five fundamentals management teams should consider when looking for investment:

Tell a growth story

The number one priority investors look for is a growth story. A strong track record of performance suggests that a management team can likely guarantee success over the lifetime of a private equity investment. 

Being able to walk investors through the management team’s track record is also important. Have they built a business before? If not, do they have what it takes to deliver their plans? These are the questions we ask as part of our early conversations with management teams.

Business size doesn’t always matter, as long as the numbers are moving upwards there is growth potential. It’s important to show your finances are in order and that you’re ready to scale.

Have a clear business plan and strategic vision

A clear business plan and strategic vision is key. It might be a sales target, a new product that will disrupt your market or an acquisition strategy. Demonstrating a thorough understanding of your market, the vision for your business and why you want to partner with an investor helps you to paint a picture of what their funding will support. 

A great example of this is healthcare communications consultancy Fishawack. The management team came to us with an ambitious but clear and achievable growth strategy, meaning we could see exactly where our support could add value. We first backed the management team in 2017 before providing £18.5m of follow-on funding during our partnership to support a series of five international acquisitions. This helped the team to extend the business’ global footprint and service offering, and helped to increase revenues by 300% and headcount by 250%.

Showcase your people, talent and skills

Ultimately, success is born out of the people and talent within a business. SMEs need strong leadership, but nurturing the next generation of talent and bringing in external strategic support when required is also key. 

Investors are also looking for evidence of succession planning. They want management teams to have a strong pipeline of talent behind them with the potential to step into leadership positions in the future. 

When we backed the management team of learning software provider Texthelp in 2019 its management team was led by CEO Mark McCusker.  

When Mark decided to step down and move into a non-executive director role, Texthelp appointed co-founder and Chief Technology Officer Martin McKay as CEO. Martin was part of Texthelp’s DNA, and was able to bring his extensive experience and skills that he had developed during his long tenure at the business to the helm. 

Beyond the capital, think about where the investor can add value

It’s also important to consider how an investor could add value by acting as an extension of your team. Private equity houses are equipped with extensive industry expertise, so they can also help to bolster the skills of management teams by acting as a long-term partner and valuable sounding board. 

A recent example of this is our three-year partnership with unified communications provider Babble. With our support, the business accelerated its growth and product innovations through an acquisitive growth strategy. We provided nearly £9m in follow-on funding to finance six complementary acquisitions. Our Value Creation Partners – a team of strategic experts who can help support the delivery of operational improvements ‘ also helped the business to enhance its sales processes and tap into our portfolio of mid-sized businesses to win new contracts.

Map any risks

Some markets are naturally volatile. But future risks aren’t a barrier to attracting investment. The most important thing is to show that you understand the strengths and weaknesses of the business and the market you operate in, and that you have considered how you’ll navigate potential challenges. Disruption can occur in any industry, so you’ll also want to look for an investor that is committed to your strategy through the rough and the smooth. 

In these uncertain times, it’s more important than ever for management teams to consider the support of a long-term investment partner who can advise on the most effective ways to build scale, resilience and success. This can make all the difference to giving business leaders the confidence to capitalise on new growth opportunities at their fingertips.

John Garner
John Garner

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