1. It takes longer than you think
TV shows such as Shark Tank may create the impression that you can get an investor to hand over a cheque after one short pitch. But don’t be fooled – it often takes many months to negotiate a mutually agreeable deal.
“It was really quick actually, for a publicly listed company … it was probably three months from start to finish before we closed it,” explains Greg Taylor, co-founder of payment app Clipp.
Greg says he sold an equity stake to Mobile Embrace as a means of raising capital to fund further growth.
“There were a few times that we thought it might get up or it might not get up, but that's the nature of doing a deal,” he says.
Yet as Greg implies, three months can be a very short period, particularly when dealing with large companies.
“From when Telstra first approached us to when the sale was finalised ... that was a 10-month process,” recalls Jason Titman, who received investment from Telstra in his e-commerce platform Neto.
2. Partner with the right investor
A business investment is in many ways like a marriage, so it pays to partner with the right investor to ensure a positive, sustainable relationship.
Getting along on a personal level is important, but so too is having shared goals, a shared vision for the future and an understanding and respect of each other’s key traits.
“Anybody who is going to invest in an idea has to be inspired by the idea,” says Mike Lelliott, co-founder of Saint, who secured venture capital funding to launch his range of ‘unbreakable’ denim clothing.
“I met a lot of people around the world who were super-stoked on the idea, and actually I think it was a unique proposition and a solid foundation. Although it's a process, it wasn't impossible.”
Aris Allegos, co-founder of alternative lender Moula Money, agrees.
“We were having various discussions with numerous partners around putting that A-round away; we had the benefit of a pretty good track record by that stage, we had the benefit of having some very sophisticated IP [intellectual property], and then … we started the discussions with Liberty [Financial],” he says.
“They clearly saw that in us – the IP and the track record – and then next thing we knew, we had closed a sizeable round with them.”
3. Keep an open mind
As noted above, it’s important to partner with the right investor for your business. However, that right investor could be a person or company you never expected to be a good fit.
As Neto’s Jason Titman explains, partnering a small software start-up with one of Australia’s largest corporations may not seem like the most obvious fit, but once they dug deeper they identified potential synergies between the two.
“Certainly a company with global reach and deep pockets is particularly important,” he says.
“But at the same time, if we went through all of the internal processes that a company of that size has before they can bring something to market, our competitors would get the jump on us every time. So that was a big concern, and I think there was a lot of to-ing and fro-ing and assuring each other, certainly from Neto's point of view, 'Is this fit right?', 'What's it going to do to us?'.
“They've been very conscious of the fact that they are not slowing us down.”
“You don't want your staff getting distracted around a new investor coming in.”
4. Don’t forget your customers
Taking on investors means you have an additional level of responsibility – to deliver shareholder returns to someone other than yourself. Without careful oversight, this additional responsibility could see your focus on customer service lessen.
“If you start convincing yourself that your number one responsibility is to your shareholders, it won't always result in the best outcome for your customers,” suggests Steve Plarre, CEO of family-run business Ferguson Plarre Bakehouses.
5. Keep running the business
Taking on an investor can eat up a great deal of your time. However, it is crucial to not let this additional workload negatively impact the day-to-day operation of the business.
Employees will generally sense something is going on during the process of taking on an investor, and without keeping them informed of the situation, they may begin to fret that their jobs are no longer secure.
“Be prepared that it's going to be a hard process and that you've got to be really careful with your staff about being as open with them as possible, understanding that there is typically going to be confidentiality agreements there,” notes Neto’s Jason Titman.
“But at the same time … you don't want your staff getting distracted around a new investor coming in, because the staff's job is to stay focused on what they are doing, regardless of who the investor may or may not be.
“We felt it was important that they knew the business was in good hands – the reason we were out of the business so much in that period was not that we were desperate or cash-short, but that we were actually going through these negotiations.”