Approaching investors with confidence25Jul2022
Before approaching an investor, remember the five P’s: Proper Preparation Prevents Poor Performance.
We recommend conducting background due diligence on the potential investor before meeting to see if the investor is suitable for your business.
Here are a few topics to explore:
1. The investment mandate
Find out the potential investor’s investment mandate and how your company fits into that mandate.
If the potential investor invests only in companies of a particular sector, you can approach them to see if there is an interest. However, the prospect of investment is more remote. We suggest approaching investors who typically invest in companies of your company’s industry or sector.
If the potential investor invests in your industry sector, but at a later stage, there may still be some advantages to approaching the investor. However, adjust the nature of the approach. Your company may not be a suitable investment yet, and this should not be your focus. Instead, you should lay the groundwork now in case your company could be of interest down the line. Stay in touch with this investor and maintain/build that connection. When your company arrives at their desired investment stage, you will have established a relationship, and the investor may be more receptive to your approach for investment at that time.
Investors are often forthcoming with this kind of information, making their use of time more efficient. Also, the venture capital community in Hong Kong is helpful, and others in the community will also share guidance.
2. What type of investors are they?
Are they passive investors, or will they be actively involved in your business? Investment style is one of the most critical factors to consider, especially for companies in the early stages.
If you are looking for an investor who will advise and help drive your business forward, you may want a more actively involved investor. However, a passive investor will be more suitable if you are only seeking funds and wish to keep the freedom to run your company without interference.
The key is determining how much influence and control the investor will impose on your company. The type of investor(s) can make or break a business.
3. The investment process
Enquire into the internal process of the investor to invest in companies. This knowledge will help make the investment process as seamless as possible.
Professional investors often have specific internal protocols and requirements to be completed before investing in a company. Gaining insights into the approval and investment process can help you prepare and manage your expectations on timing.
You should have all your due diligence materials prepared in a well-structured, deliverable form. Thorough due diligence can also remove friction from the investment process and help complete the investment efficiently.
4. Ability to fund
We recommend assessing the investor’s ability to fund. Here are some points to look out for:
- When was the last time the potential investor invested in a company?
- How strong is the investor financially?
- What is their budget?
- Is the investor selective in its investments, or is the investor spreading investment in various companies concurrently?
5. How diverse is their portfolio of companies?
The selection of an investor is a signal to other potential investors. Important questions to consider before approaching a potential investor are:
- Could companies in their investment portfolio affect your business or branding?
- How would the investor fit with your brand and culture?
- What would people think if they associate the investor with your brand?
- What will the signal effect be if this investor invests in your company?
Considering the above can assist you in determining whether there will be any effects or implications on the reputation of your business.
If you would like to discuss any of the matters raised in this article, please contact:
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.