This week Advantage Business Angels managing director, Neil Mackay, looks at the new hot topic - investment readiness.
There are many businesses out there that appear to have a good idea but cannot raise money because they just don't appeal to investors.
That is a sad fact, but sometimes if a spot of work, which we'll call investment readiness, is done to prepare these companies, they may well get funding.
But not always. Let's look at some of the reasons why so called good ideas don't get money.
The biggest reason is that the idea sounds good but in reality there is no market for it at a price that can make a profit. A great many of the entrepreneurs who come to us fall into this category.
Quite often the product may well have a market but it cannot be sold at a profit or is so easy to copy that once the market was established more powerful or lower cost competitors would come in and steal it.
Investment readiness probably won't help here.
The next situation is less common but still happens every week.
Here a good idea or even an existing successful business wants money but the entrepreneur values the business too highly.
But this issue is susceptible to investment readiness work. Entrepreneurs can be confronted with valuations placed on businesses and can then decide what to do. They can accept the market prices or potentially fail to exploit their idea.
Another common problem is entrepreneurs not knowing exactly what an investor is looking for.
This is a more complex situation as different investors look for different things. So what satisfies a business angel may not appeal to a bank or venture capital firm.
Investment readiness work here is more difficult to plan as it needs to address the agenda of the investor rather than the business. All businesses need to remember however that the investor's agenda is "how much will I make, when and how".
Finally, the general case of a business with a perceived weakness in marketing strategy, financial control or some other aspect of its operation should be considered. This is a more difficult and subjective issue. Most businesses have some aspect of their operation that could be improved, so how do you diagnose exactly what should be done under the investment readiness banner?
The value of a business will reflect its strengths and weaknesses. So, often the investor may perceive a real opportunity in a business with a weakness. Remember an investor makes money by buying into a business for less than they sell out, so the chance to buy in and fix a weakness may paradoxically be a very strong selling point. This is particularly the case if the investor believes one of their strengths directly addresses the weakness.
Given these complexities, we are now likely to see a big push from the consultant community on investment readiness.
Companies should consider one of the programmes sponsored by AWM, for example Invored, or the excellent programme for technology business run by the University of Warwick Science Park.
These have been put together with investors in mind and UWSP's track record of successful funding. Remember - the investor decides who is investment ready or rather, their money does.