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Under the hot lights of the Dragons’ Den studio it seems relatively straightforward. You have an idea. A surefire winner. You talk through your plans with some millionaires. They like it. They like you. They ask some questions. You perspire. You haggle a bit and you come away with a bag of cash and a little less of your company than you’d bargained for, right?

Wrong. For a start, if you are pitching to a group of potential investors, it’s highly unlikely they’re going to sit there in a dimly lit loft apartment with a pile of bank notes nestling on a small table next to them. Nor will they look down their noses at you and take delight in telling you that they’re ”out”. What they will have in common with Peter, Theo et al, however, is a nose for a good business opportunity and it’s up to you to convince them that, with a fair wind and the right backing, you and them can create a successful new venture together.

But where do you start on your quest for investment, especially when the global credit crunch seems to have severed most lines of funding? Well, the good news is that amid the turmoil, there are still many ways and means to give your fledgling business the best possible chance of success. From angel networks to research and development grants and on to local authority incentives, there’s a wealth of options available to the entrepreneur and no shortage of start-up websites and specialists on hand to offer support and advice.

That’s not to say that times aren’t tough for entrepreneurs. All too common problems with cash flow have now been compounded by a lack of adequate and, more particularly, available investment. Ordinarily, one in three start-ups fail in their first year of trading. Last year, with the economy nosediving, the failure figure was approaching 50 per cent.

The recession has also seen investors shutting up shop or spreading what they do have more thinly. In 2007, for example, investment in start-ups from so-called ’business angels’ was around the £1bn mark. With official figures yet to be released, it’s estimated that the number could be as much as 40 per cent less for the past year.

But if that suggests doom and gloom, then think again After all, some of the biggest, most iconic companies in history have emerged from troubled economic times. The Disney Corporation, for instance, began life in the recession of 1923, while Hewlett-Packard emerged the following decade despite the ravages of the Great Depression. More recently, meanwhile, Bill Gates started Microsoft in the US slump of the mid-1970s.

For recession, read opportunity. Yes, lending may become scarce, trading terms may change and the rulebook may be rewritten, but a great idea is still a great idea, whatever the economic climate. And while raising capital may seem like a business in itself, with determination, belief and a rock solid business plan, you can still get to where you want to be, especially if you arm yourself with some expert advice…

Find An Angel
An angel investor is an individual or a group of individuals who invest their own money in a company, as opposed to venture capitalists, who use other people’s money. Typically, an angel will invest anything from £5,000 to £500,000, but only when you’ve convinced them that your company shows genuine growth potential. Perhaps the best way of finding a new investor is approaching a business angel network. There are scores of them across the United Kingdom, a full list of which is available on the British Business Angels Association’s website. ”Angel networks can really help your start-up,” says Jenny Tooth, business development director with the BBAA. ”If you can prove to them that your business idea is sound they’ll then help prepare you in your approach to the angel community itself.”

Prove Your Concept
You’ve found an angel (or angels) and the meeting is in the diary. To give your idea the best possible chance of attracting funding, you will have to demonstrate that you’re already making progress. You’ll need your company branding in place, as well as things such as your website, business cards and offices. And remember, assistance to your start-up needn’t always take the form of cash. Try keeping your costs down by exchanging a little equity in return for services. Maybe you can give away some shares to someone who can design and maintain your company website? Perhaps you could do the same with your marketing or accountancy needs? Normally, you’ll also need to demonstrate some sales or at least some evidence of potential orders. Not only does that prove that there is already an interest or a market for your idea but it shows clear and demonstrable progress.

Show Creativity
Alternatively, think of a killer marketing idea to get your idea off the ground. Innocent Drinks is a case in point. In August 1998, the three founders spent £500 on fruit and set up a stall at a London music festival to test their smoothies. With one bin marked ’YES’ and another marked ’NO’, they then asked all their customers whether they should resign from their day jobs to make smoothies full time. The response was overwhelmingly positive and, with their concept proved, their quest for investment was made much easier. The following day, they all quit their jobs and eight months later their product hit the market.

Show Commitment
Potential investors will assume you’ve already invested some or all of your own money in your business idea. Perhaps you’ve re-mortgaged your house? Maybe you’ve borrowed it from your parents? You could even have stuck it all on the plastic. Whatever, they’ll want tangible signs of commitment, and financial commitment at that. ”You can’t be a half-hearted entrepreneur,” says Rachel Bridge, enterprise editor of The Sunday Times and author of You Can Do it Too — The 20 Essential Things Every Budding Entrepreneur Should Know. ”You have to throw all of your energy at it, even at the expense of friends, family, sleep and social life. You need absolute commitment.” Take Will King, founder and CEO of the global grooming brand King of Shaves. Not only did he start his business in the recession of 1993, but he didn’t take a salary for five years, existing on loans, credit cards and the goodwill of others. ”There’s no such a thing as an overnight success,” adds Bridge. ”It’s like renovating a house — it’s going to take twice as long and cost twice as much and you have to be prepared for that.”

Be Pitch Perfect
The key to a strong pitch is confidence, not merely in the way you speak or the way you present yourself but in the idea itself and why you believe it will make you and, crucially, the investors some serious money. ”In pitches, it’s the extremes in attitude that put investors off,” explains Brad Rosser, a start-up specialist who has raised over £1bn in investment for new ventures. ”They can be either too cocky and too arrogant or too subservient and apologetic. It’s a fine line to tread, but if you believe that you’re both doing each other a favour and that this is a win-win for all concerned then that will show through.”

Have All The Answers
There’s going to be a lot of questions, not just in your initial meetings but in the following weeks and months, too. ”Investors will really want to get underneath your business and pin down where the main challenges lie,” explains Jenny Tooth. Moreover, angels will want to know who is going to execute your business plan and whether you have the right team and the relevant skills in place to do it. Crucially, they’ll want to know whether your business is going to bring them a ten-fold return on their investment. For the angels to receive that kind of return your business will need to be scalable, and not merely some nice lifestyle business. They need to see real potential for growth and increased revenues.

Do Your Due Diligence
Just because your investors have the money doesn’t mean you shouldn’t check them out. Look at their track records. Do they have experience and expertise in your sector and are they well connected? If you’re at all concerned that their hands-on approach may become simple interference then make sure you establish the ground rules before you embark on the partnership. Remember that they are entrusting you with their money and you should be busting a gut to give it back to them with interest. In short, you both want the same thing. ”The relationship between investor and entrepreneur is never better than the night before the cheque goes in the post,” says Jenny Tooth. ”After that, well...”

Be Prepared To Walk Away
”Don’t leap into the first deal that presents itself,” says Brad Rosser. ”Getting the wrong type of funding can be just as bad as getting none at all. Think long and hard about it. If your investment comes in a straightjacket of restrictions it can really suffocate your business.” He’s right. This, after all, is a two-way street. Yes, you want people to invest in you but if your idea is as strong as you believe, you’re also going to make them a lot of money along the way. If a deal appears heavily weighted in favour of your investors but the money on the table looks almost too good to turn down, it’s best to remember that as a start-up business, equity in your company is still worth very little, so try to negotiate a ratchet system whereupon on if you meet agreed targets and milestones you can receive some equity back. Alternatively, if the goal is to exit in a given number of years, ensure your share is tied in to the amount the business is sold for. That is to say, the more it sells for, the greater your share of the equity. blog comments powered by Disqus