We had the pleasure of hosting a workshop on investment readiness at La Cocina’s Food + Entrepreneurship Conference a couple of weekends ago in San Francisco. We discussed what it means to be investment ready, how to get there, and what investors are really looking for.
For those who couldn’t join us at the workshop and attendees looking for a refresher, here’s a brief recap of the information covered during the session.
What is Investment Readiness?
Investment readiness is much more than just needing money. The need for funds alone does not mean you’re ready to seek them out, much less that you’ll be successful. There are four main components that make up investment readiness:
1. Vision and Goals
It’s important to know where you want your business to go and the impact you want it to make. Your vision should answer the question, “What type of world am I trying to create with my business?” Within this vision, understand what your special sauce is–the key differentiator that makes your business stand out from the rest and keeps your customers coming back.
This vision will shape your goals, both long and short term, and will be guided by your values and the core beliefs shared by you and your stakeholders. Ultimately, it will function as the framework for the decisions you make about your business.
2. Financial Fundamentals
It’s important to be able to speak to your businesses key financial metrics. A food business must understand its gross margin, as well as what its gross margin should be based on an industry baseline. Other metrics will depend on your particular business plan. For example, revenue per square foot is a key indicator for a retail business. You need set targets and outline a plan for how you will reach these targets and your strategy for expansion.
You are not investment ready if your business plan does not get you to the point of paying yourself. We often see businesses where the founders or senior employees are either not paying themselves or are paying themselves well below market rate. Your plan must include paying yourself market rate at some point down the line, and hopefully sooner than later.
3. Proof of Concept
Proof of concept demonstrates to others that your product or service is viable. Ideally, this is in the form of a prototype, product, or existing revenue, but could also be based on experience and related things you’ve done in the past or that your team has demonstrated experience in.
4. Clear and Confident Communication
The last piece of investment readiness is being able to clearly and confidently articulate the three pieces outlined above to others. Part of this includes understanding what your investors are looking for and the information they’re interested in, as well as preparing clear and compelling pitch documents.
In our Investment Materials Resource Kit, we outline what documents you should put together and the information to include in order to successfully pitch potential investors.
So, what are investors are looking for?
When pitching investors, they want to hear a story about who you are and where you are going. This story should contain three main parts: special sauce, financials, and your ask.
The special sauce aspect of your story helps investors understand what makes you and your business unique. This ties back into the vision you’ve created for your business and its impact on the world it operates in.
The financial component to your story should include both your historic and projected financials. You should be optimistic, realistic, and honest. The numbers included in your financial story should be well researched and backed by as much evidence as possible. Do not include pie in the sky numbers, but don’t sell yourself short either.
The ask focuses on the the size and type of investment you are looking for. Investors want to know why investment is needed at this time and where it will get you in terms of your growth strategy.
As you build your pitch, always remember that you are telling a story. You want to bring investors along with you throughout your past journey and into the future as you articulate these pieces of your story.
We’ve put together an entire investment readiness resource page on our website. There, you’ll find:
- Slide Deck from the La Cocina Conference
- Investment Key Terms
- Information about investment types and materials
- Slide Deck from a Finance 101 workshop
As you can see, there’s a lot that goes into investment readiness, and we barely skimmed the surface in our workshop. Our goal is to help you understand the bare basics of what goes into being investment ready, so you can figure out what your next step should be in preparing your business for investment.
We know it can be an overwhelming process, and that’s why Friday Consulting offers investment readiness services to guide you throughout your journey. We’ll work with you to craft your vision and goals, financial fundamentals, and proof of concept. We also provide pitch coaching services, assistance with developing investment materials, and support in finding the right type of investors for your business.
Sound like what you need? Send us message and learn about our services in more detail.