The Private Investor (also known as a business angel) is a high net worth individual that may invest in your company at very short notice. They will normally be experienced in business, and have particular experience or interest in your sector. They will believe in your business and will invest for a share of the equity.
They will usually require an involvement (to varying degrees) in the day-to-day running of the business, and bring with them a wealth of experience and knowledge.
How long will the process take?
As we are all aware that time is critical, our whole philosophy is based on searching and locating potential investors rapidly. Initial meetings with potential investors can be had within one week of instruction, and if successful, offers for funding made soon after. Equity funding can be completed within 28 days in the quickest cases.
Will they be active or passive investors? Will they seek a full time role in the company?
Many investors will have specific sector experience and may wish to be “hands-on”. In some cases this should be welcomed, however it is unlikely that the investor will want to take over the business. He or she may look for a majority stake whilst the investment is at risk, however we have found that in most of these instances majority ownership will revert back to management once the business has been put back on a sound footing. In other cases, investors will seek only a small minority stake – it purely depends on the circumstances of the investments and the current health of the business. Other investors are happy to be passive, particularly if an element of security can be offered for their risk. It should be stated that investors do not, as a rule, ask management / current owners for any personal security.
Will the investor inject money personally, or may the investment be syndicated?
Most investors will invest personally into a business. A small number operate their own informal syndicates but would always act as one party. Investors of the business angel or white knight variety tend to be successful entrepreneurs with a great deal of experience in the small business and SME sectors.
Is my own position secure?
Investors seek to back the business and its management; if they wanted to buy the business, they would by definition not be private investors. Again, there are no fixed rules – some management may need changing, active investors may require the role of Managing Director or Finance Director, in other cases there may be nothing wrong with the management structure, just a lack of resources and in these cases it would be foolish of the investor to take an active role.
What exit route would they prefer and what is the usual timing of this?
Exit routes and timing of exits are difficult to define. Investment may come in the form of a loan or equity or a mixture of the two. Investors may underwrite bank borrowing allowing for additional working capital. There are so many ways in which a new financial structure for the business may be put in place that the timing of a desired exit can be anything from 6 months to 5 years.
Clearly this is a difficult market in which to operate. Investors are under no obligation to commit funds, and many businesses are past the point where it is economically viable to inject further capital. The golden rule is that businesses with a good future are fundable, those without are mostly not.
Above all, when dealing with an investor the key is to remember that this is a people business. If the owner/manager and investor can work together and see a similar future for the business, then it is more likely an investment will take place.
Read more about Turnaround Finance and also other types of Venture Capital by following these links. We are here to help you and answer any questions you may have. When you’re ready, please call us or request a call back using the above box or email Nick at firstname.lastname@example.org
If your business is in need of funding there is no substitute for immediate communication.