You have asked a very interesting question George.  I’m sure we’ve all watched an episode or two of Dragon’s Den and the key question that is always asked - “why do you want investment and how are you going to use the funds”? I’ve seen many businesses attract investment but it comes at a cost and you have to be sure that it’s worthwhile by assessing the pros and cons…

Are you purely after the individual?

Reading between the lines of your article George, not only are you seeking cash but you're looking for someone who can bring something to your business and help it succeed more quickly. This is so often the case with start up businesses. Entrepreneurs find themselves in places and positions that they’ve never been in before and have a real need to bounce ideas around and use the experiences of others who have seen it before. You should decide at the outset what you’re really after - the individual, the cash or both?!

How are you going to use the funds?

You have to be sure that you need the money and that it’s going to be put to its best possible use. You mention additional employees and promotional activity. Together with working capital to fund products/stock, these are generally the top three requirements for funding start ups. However, you might not be able to do them all and therefore you will need to be selective and closely scrutinise your strongest needs to give you the best return.

How do you find the right investor?

There are an increasing number of forums for investors/investment. There are business angel groups, such as Beer & Partners and then there are organisations like GINEM and Connect Midlands. Whilst these forums are invaluable, I firmly believe that it is largely down to your own network. You should identify the kind of person/investment that you’re after and discuss your requirements with the right people.

Should it be a loan or shares?

A loan is likely to come with a more immediate and tangible cost than shares. Interest rates are generally high for this type of start up funding and when repayment comes around it can be a real challenge to refinance. Shares are becoming more and more common for investment in start up businesses. There’s very little immediate cost to the business and the investor can share in the upside assuming all goes well.

How much equity will you need to give up?

This will clearly be factored into the investment decision and will form part of the negotiations. Whilst you’re going to work closely with the investor it’s important to drive a hard bargain and ensure you don’t give up too much equity– they will actually respect you for it and it builds your credibility as a business partner. There are numerous ways to structure the investment and the investor can get some valuable tax breaks under the Enterprise Investment Scheme so make sure this is taken advantage of and factored into their decision.

Be prepared

No, this isn’t an advert for the scouting movement! Whilst investors accept that start up entrepreneurs often come with an element of inexperience, they expect a level of professionalism and forward planning. They will expect business plans with a clear strategy and detailed cash flow forecasts together with evidence that you’ve protected the business from relevant risks. If you’ve not prepared properly then it will show and it will either turn the investor off or make them want more for their money.

Investment can really help you to accelerate your plans but you need to be selective as it could be the most important decision that you make!