If you’re looking for funding from investors, you need to take a step back and look at your business from their point of view. In the creative industry we are familiar with grants, but investment is a whole new animal. The biggest single difference between grants and investment funding is that grant funders don’t expect you to return the money to them whereas investors expect not only to see their investment back but a return on this investment as well. If that sounds like a rather simplistic statement then let’s work through the consequences of this.
Firstly investors need an ‘exit strategy’ – an agreed plan for liquidating their asset and returning it to them … they probably don’t want to remain invested in your business for ever. This means that not only do you need to generate a sufficient return on investment (ROI) but your business needs to be stable and sustainable once their money has been removed from the equation or replaced through say a management buy-out or bank loan.
This means thinking about your profit margins. Investors won’t be content to see a 10-15% profit before tax year on year or indeed a 10-20% growth in turnover as this is unlikely to be a fast enough growth to enable them to exit in 3 to 5 years or generate the returns they are looking for. So, the business model that enabled you to grow steadily, take on staff, take on larger projects etc may not be able to deliver a step change in turnover that an investor needs … but then a large part of the reason you’re seeking an investor is because you want to grow faster than your current profits will allow!