Million dollar questions

You’ve got the business as far as possible using cash loaned by friends and family, but now the cupboards are bare. What’s the best way to approach investors and what can you do to prepare for their interrogations?

Million dollar questions

Most people think they know how the investment process works. Thanks to the media saturation of shows such as The Apprentice and Dragons’ Den, many aspiring Richard Bransons think all it takes to woo investors is the honing of a presentation and learning key facts and figures. But they’d be wrong. 

The line between entrepreneur and investor is often slightly blurred. It’s not unusual for investors to have had experience in starting and scaling businesses and are therefore rather picky when it comes to investment opportunities. Dale Murray is a successful entrepreneur in her own right, having started and grown a business in the mobile telecoms space to £7m revenue in its first three years. Now working on the other side of the fence, she was voted Angel Investor of the Year in 2011.

Murray says the path from business founder to investor is a well-trodden one. “That’s how it normally works: you build a business and when you get an exit, you want to reinvest some of those proceeds into other entrepreneurial businesses.”

As a result, she has a clear idea of the kinds of businesses she wants to be involved with. “First of all, the idea has to grab me. And it has to be in a sector I’m interested in. Someone pursued me yesterday – literally stalked me out of the building and along the street – because he was desperate for me to have a look at his sports business,” Murray recalls. “But I really have no interest in sports businesses, so he could have had the best sports business on the planet, but it’s not something I’m interested in.”

Secondly, the entrepreneur needs to express themselves clearly and articulately – whether that’s on paper or in person. Murray reads around 10 business plans a week – on top of the 10 face-to-face pitches she endures over the same period. The key is simplicity, she says. “What entrepreneurs often do is they put so much information on the front page of the business plan that it becomes cluttered, and the thinking becomes congested.”

One of the ways to eradicate such errors is to do away with the business plan entirely. Max Niederhofer, a VP at tech-focused VC firm Accel Partners, says that while it’s important for founders to write down their ideas, this document should not be sent to investors. “Most savvy venture capital investors no longer want the traditional business plan,” he says.

Make the job easier for the potential investor, Niederhofer advises. “Remember, entrepreneurship is thriving around the world and we see thousands of companies a year. A long, written document is difficult and lengthy to consume. It’s best is to come up with a 10-to-30-slide PowerPoint deck that delves into the most important points: the market opportunity, your product, the go-to-market plan, your team, the financials, how much money are you raising and what for.”

Alliott Cole, a principal in the early-stage investment team at VC firm Octopus, also believes face-to-face pitches are the most useful way of delivering an investment opportunity. “We try to recognise that we’re part of an ecosystem and a community. One element of that is we run an open office every week – it’s an environment where anyone can come and see us. We don’t screen and we don’t make any selection as to who can come and see us,” explains Cole.

“One of the investment managers will meet an entrepreneur for half an hour to 40 minutes; we tend to see nine to 10 people each week and it’s an opportunity for people to ask us questions, present their business, or just to take the first towards steps building a relationship with us,” Cole says.

Cole’s last point about relationships is a vital one: the importance of a healthy relationship between investor and investee cannot be underestimated. Ten Management founder Alex Cheatle says that many of the early investors in his business were people who already knew and trusted him. “Almost all of our founder investors either knew me from university, knew me from my previous employer, Procter & Gamble, or were members of the service – this meant they had the trust.”

Cole says that trust has to be a two-way thing. “It is very much a partnership,” he says. “It’s important that there’s a good fit between investor and entrepreneur and that there is an open and honest relationship.” The best way to do this is to spend lots of time together, he explains. “The way we form that relationship is to meet the entrepreneur on several occasions in the run-up to the investment. It gives the entrepreneur the opportunity to see how we operate and ask several members of the team the same questions to see the consistency of the responses.”

Niederhofer agrees that trust is built over time. “Trust is usually built through long conversations with the entrepreneur, diving into their plans and current metrics, testing their knowledge of the market, and exposing them to some of our key industry contacts.”

So, financial tables, business plans and P&Ls aside, how much does the founder’s likability count? A lot, says Murray. “Within an hour in the company of an entrepreneur you get a great sense of what kind of person they are and whether or not you want to do business with them,” explains Murray. “I think to myself: ‘Do I like this person sufficiently to want to carry on seeing them?’ It’s like dating.”

The business angel says she’s happy to rely on her gut. “I’ve been in business for a couple of decades, and I think my instinct is pretty good now,” she says. “One of the wonderful things about being an angel investor is that I can choose what to do. I have complete choice over my life. I choose to get involved with entrepreneurial businesses and, more than that, I choose to spend my money on them. So I’m not going to spend my money and spend my time on something unless it really ticks all of my boxes.”


The dos and don’ts of approaching investors


Do concentrate on building the relationship first. Hang out where you know investors are likely to be. Even if you won’t be pitching for investment for a while, it’s never too soon to start networking.

Do be concise. Investors hear hundreds of pitches a month. No matter how revolutionary you think your product or service is, no VC or angel has the time – or the inclination – to read a 50-page document or listen to a two-hour presentation.

Do ask around. Speak to entrepreneurs in your sector who have secured investment and find out who they partnered with and why. Don’t be afraid to ask questions.



Don’t underplay the competition. It is unlikely that you have reinvented the wheel, so there will be competitors. And if there aren’t, you are facing the unenviable task of creating a market from scratch. 

Don’t push it if it’s clear that you and your chosen investor don’t have the right chemistry. If you don’t see eye to eye at this early stage, it’s best not to pursue it. There will be other investors who are a better match for you and your business.

Don’t tell the story you think you ‘ought’ to tell. An experienced investor will be able to see through the bullshit and you’ll be out on your ear. Be as open and honest as possible. 

Hannah Prevett
Hannah Prevett

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