Five things to know about your business before approaching a capital partner
If you’re an entrepreneur wanting to propel your business to the next level, you may find yourself seeking a capital partner.
Such a partner can be a tremendous asset, because — unlike lenders — capital partners aren’t necessarily seeking a payment each month. Instead, a capital partner is “in it” with you and has a unique incentive to help the business succeed.
An investor can also become a reliable source for business advice and access to a strong business network.
Here are five key factors to know about your business when you’re seeking to attract such a partner.
First, know your numbers…
Investors want to see a return on their investments (ROI). If you can demonstrate your business will provide a healthy, ongoing ROI, then you’re over the halfway mark in terms of attracting a great business partner.
Knowing your revenue, expenses, EBITDA, and other key performance data is the starting point for entrepreneurs seeking to make a case for ROI. You should also be able to articulate how you intend to improve upon these numbers.
Second, have a plan…
A solid, easy-to-understand business plan will demonstrate to investors that you’ve been thoughtful about how to approach and grow your business. Make sure your plan describes your product or service, intended market, sales channels, marketing plans, and timeline for growth.
When presenting your business plan, you should also be able to discuss competition, barriers to success, and strategies for overcoming them.
Third, know your point of difference…
Virtually no business can provide an ROI without a unique position in the marketplace. So be sure you know why people want your product or service. What makes it different? What makes it special? What do you provide your target audience that others cannot?
Make sure to convey the problem you’re solving or challenge you’re helping customers overcome.
Fourth, be able to convey why your business is ready for an investor…
Make sure you can discuss how capital investment will help your business. What are your plans for the investment? How will those plans help your business grow? What do you need from an investor beyond cash?
And, of course, you should be able to explain, simply, what you’re bringing to the table that will help ensure a return on investment. That might be relationships, particular experience or knowhow. Perhaps you hold patents that provide a competitive advantage.
Regardless of your unique position in the marketplace, be able to answer the question of why you are seeking a capital partner. Convince your potential investors that you have solid plans to put capital to good work.
Fifth, have a clear valuation for your business…
For example, if you want $100,000 for ten percent of your business, you’ll need to be able to demonstrate that your business is worth a $1 million. This can’t be done by “feel” or based solely upon “projections” that may or may not come to fruition.
You should be able to make a strong case for the value of your business. Remember, as an investor and not a lender, a capital partner is going “all in.” He or she is typically trading cash for ownership. You must be able to articulate a reasonable value for what a capital partner is buying.
Elvisridge Capital seeks established, privately held, middle- to late-stage businesses based in the United States. We invest in situations where our experience and resources can help generate significant profitability improvement and revenue growth. To begin a conversation, contact us at info@elvisridgecapital.com.
