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If you’re looking to start up, or already own a business,
at some point you might be looking for funding.
This is likely to involve a meeting with lenders or investors.
Pitching for investment can be difficult
and in this presentation we tackle some of the most important issues.
Look presentable, behave professionally, first impressions count.
Having a clear, well-rehearsed presentation is vital,
the investors need to understand your pitch.
You need to be investment ready.
You have to impress the investor,
just having an idea for a business is not enough,
make sure that you know your business thoroughly
and understand your market.
Prepare a business plan and be ready to explain your proposition
and be prepared to answer questions.
Be ambitious but realistic.
Convince them why they should invest in your business.
Not appearing knowledgeable, exaggerating, being evasive
or even misinforming investors could ruin your chances of investment.
Any investor will expect you to tell them about the expertise
and the experience already within your business.
They will want to see full commitment to the business by the management
in terms of time and perhaps financial input.
Lenders will want to know whether or not you can meet your loan repayments
so they will be very interested in the credit-worthiness of your business.
Grant providers will want to ensure your business is a worthwhile investment
and that you meet their criteria and are able to achieve your goals.
Investors such as business angels or venture capitalists
who might want a share in your business
will be more interested in the long-term goals.
Make sure that you have an accurate idea of what your business is worth.
If you’re not sure get an accountant to help you.
Investors will be keen to know that there will be an exit opportunity
and they will be able to recover their investment and take some profits.
So they’ll want to know what your long-term plans are.
If you struggle to explain yourself this may lead the investor
to think that you underestimate their role,
perhaps making them feel that their time,
energy and funds are better used elsewhere.
You must be able to clearly describe the target market,
the competition and your competitive edge.
Explain how you’re going to spend the funds,
investors are not going to part with cash
if they’re not comfortable about how it’s going to be spent.
Know your margins, the selling price of the product and the costs;
that shows a realistic grasp of potential returns
and the commercial viability of the business.
Let the investor know that you fully understand the terminology
such as gross and net profit.
Knowing your numbers is vital whether they’re actual or projected.
Be prepared to speak knowledgably and passionately about your business.
We will now see a role play, a fictional example of someone
pitching a new product to some potential investors.
Thanks for coming along today, we’ve read through your business plan,
could you tell us a bit more about your proposal please?
Yes, I’m seeking investment for my new business venture
which is a security device for mobile phones
that enables the handset to be deactivated if it’s stolen.
The company owns the copyright on the software,
the software’s at a latter stage of development
and the business owners have invested £400,000 of their own money in the development.
We’ve sourced a manufacturer and we’ve negotiated a supply contract.
We believe this product is the future of mobile phone security.
Thank you for that Barry, can you tell me what the unit price of the product is?
Yes, we’ve done some market testing and we found strong acceptance
for a unit price of £1 which gives us a gross margin of 70%.
And how did you arrive at this figure?
Well we have development costs of £250,000 to recover,
we’ve also done some research and found that the selling price
has to be between 5 and 10% of the handset cost.
Based on our bought in price of 30p per unit that gives us our 70% gross margin.
So what’s your revenue forecast then?
We anticipate a market share of 10% in year one,
25% in year two and 50% in year three.
That translates into revenues of £2 million, £5 million and £10 million.
Based on our projected operating costs we will lose £600,000 in year one,
but make half a million pounds in year two
and three million pounds in year three.
The market is forecast to remain flat over the next two years,
how have you factored that in?
Well we’ve taken that into account
and even at a selling price as low as 60 or 70 pence per unit
we could still make the business profitable.
But how do you expect to get the volume if the market is flat?
Well we’ve done some research there too
and in the UK there are currently 55 million handsets in use
and on average these are replaced every 2.75 years
so that equates to 20 million new handsets every year so it’s a very big market.
And have you had any interest from any of the major players at all?
Yes actually we’ve had some good news there.
We’ve just secured an order for 20,000 units from a major player
and we’ve had an expression of interest from another big player.
We’ve just seen someone making a clear confident presentation
covering his plans for the investment he’s requested.
He’s researched the market and has even secured an order.
He’s also given the investors forecast revenues and profit and loss numbers
plus relevant information about his suppliers and the product.
And finally he has shown that the management
are fully committed to the business.
For further information on investment readiness
contact your local Business Link or take a look at the Business Link website.