Selling to investors

Selling a share in your business can be a great way to raise funds for expansion, but you can also benefit from the experience and insight of your investors.

Making the right connection

Recent research published by the government agency Innovate UK suggests there is a great deal of reluctance among fast-growing businesses to seek equity investment: more than 40% surveyed said they’ve never looked for this kind of funding, and the most common reason for it is because they don’t want to give up control of their companies.

Innovate UK also looked at the factors that were likely to make a deal between investors and growing firms a success. It says: “While businesses are right that elements such as a solid business plan and a good return on investment are important, UK scale-ups [fast-growing companies] often underestimate the value investors place on good communications, chemistry and resilience.”

An international investor told Innovate UK: “It’s all about the people – if the people are good, they can create something out of nothing and that’s probably the most important feature we’re looking for.” Another venture capitalist added: “An investor should never be just about money. It should be: ‘Can we come on that journey with you, are there things we know, experience and relationships we have that could help?’”

The keys to success

Car-sale comparison service Motorway completed a round of seed funding worth £2.75m from a group of investors including venture capital firms LocalGlobe and Marchmont Ventures.

The firm’s co-founder and chief marketing officer, Alex Buttle, says that one of the keys to being able to raise the money was its patient approach.

“We first of all wanted to prove to ourselves there was appetite among consumers for this product,” he says. “We would only go ahead and seek VC funding when we could prove that our conversion rates were high enough and that our customers were finding our proposition compelling enough.

“So it wasn’t like taking a huge amount of money just for an idea: we already know our business metrics and understand the fundamentals.”

Equally important was finding the right investors. “We have a good network built up over many years in business, and when we were looking for funding the same names kept cropping up,” Buttle says. “With LocalGlobe, there has been a good fit: they got what we are trying to do and why we are trying to do it. The key is to find investors who have knowledge of your sector.”

Making the pitch work

When it comes to pitching to potential backers, Buttle says: “We always explain the market opportunity very early on so whenever we do the product pitch, it has real context.

“A lot of companies will start out by saying we’ve got all this amazing technology that can do X, Y or Z – but then you look at the business and you realise it’s only ever going to be tiny because only a small number of people will use it.”

Darren Gowling, senior investment director at GC Angels, the investment arm of Manchester-based funding agency the Growth Company, says a critical part of any pitch is demonstrating the strength of the management team.

We always explain the market opportunity very early on so whenever we do the product pitch it has real context

Alex Buttle
Co-founder, Motorway

“You don’t have to become best friends – there may even be friction – bt you need to prove to them that you have the experience and the expertise to make this business a success,” says Gowling. “Do your research on the investors you’re pitching to: what other businesses do they work with, do they only invest in B2B or B2C, why do they invest, and what value they can bring to you besides cash?”

Painting a picture

Regardless of the type of business you are, it’s important to demonstrate evidence of customer adoption – number of users, channel partners, sales at events, social media interaction. “That illustrates how you can drive revenue scales; investors will be keen to know more,” says Gowling.

James Oakes, corporate development director at ZEAL Investment, says: “Keeping customers firmly front and centre is key to developing a product that will be loved for years to come. And showing investors just how you do that and why your idea will resonate with customers helps them see the potential of your business and the security of their investment. Remember, potential plus security equals willingness to invest.”

Don’t worry if you don’t have much time to convince would-be investors, Oakes says. “Your aim with a 30-second pitch is to whet investors’ appetites and buy more time. Bring your pitch to life and help them visualise the potential. Paint for them your vision and help them see clearly and simply why the world will be better for customers with you in it. Use the word ‘imagine’: it’s pretty powerful.”

Checklist for selling to investors

Alex Buttle has this advice for companies seeking equity investment:

  1. If you can, don’t seek funding until you can demonstrate to investors that there is a genuine market for your product or service.
  2. Identify potential investors that understand your sector or industry, and that you will be able to work with. Equity investment is a partnership, it’s not just about the money.
  3. Explain your market opportunity as early as possible in your pitch: this gives investors an idea of what the potential for your product is. But remember: just because you’re operating in a big industry, it doesn’t mean you have a big opportunity if you can’t come up with a new solution to customers’ problems.
  4. You’re going to give up some equity in your company so make sure that, whatever stake you are left with, it seems like a reasonable amount.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of NatWest Group, as of this date and are subject to change without notice. Copyright © NatWest Group. All rights reserved.

scroll to top