A Business’ Guide to Investor Relationships

Contact RENEW with questions. Voice +1 (703) 261-9021 > Email mybusiness@renewstrategies.com > Address 2020 Pennsylvania Ave. NW # 388, Washington, D.C. 20006 > Website www.renewstrategies.com

Copyright RENEW LLC. All rights reserved.

Key points to remember: Western investors value time, honesty, direct communication, competition, planning and action—and they look for entrepreneurs who can execute ideas.

STAGES OF INVESTMENT RELATIONSHIP

1. PRE-INVESTMENT Working with RENEW, before you meet the investor.

2. INITIAL CONTACT Interacting with the investor for the first time.

3. INFORMATION GATHERING Providing information about your business.

4. VERIFICATION AND VALIDATION Checking your credibility.

5. SITE VISIT Viewing your business operations.

6. DUE DILIGENCE Checking your legal and financials.

7. NEGOTIATION AND TERM SHEET Closing the deal or walking away.

8. GROW Building your business and following the plan.

Investor wants: To know you are a good opportunity.

To learn as much as possible in order to decide whether to move forward. Confidence in the leadership/ management.

To know you have a clear plan for your business.

To hear from reputable sources that you are trustworthy and that you and your team can get the job done.

To know you run an efficient operation and that the investment will be used to expand capacity.

To know you aren’t hiding anything.

To know you will see them as an owner/partner.

To help/ensure you grow and make a return.

Investor expectations:

• Responsiveness – to be able to get in contact with you as needed.

• Complete information – confidence that you are ready for an investor.

• Honesty – to trust you won’t damage their reputation.

• Prompt responses to emails.

• On-time meetings.

• An articulate, realistic, vision.

• A clear need for investment.

• Accurate, clear communications.

• You understand “equity.”

• All documents ready for review (business plan, audited financial statements, management CVs, investment proposal, legal documents and ownership).

• A competitive strategy (unique plan to gain market share).

• Prompt response to requests.

• List of references that are credible (not family).

• Leadership/ management available to answer questions.

• A clean office and facility with minimal waste.

• A friendly workforce.

• A safe working environment.

• Proof of what is in the business plan.

• Good customer service (for service businesses especially).

• No surprises!

• To be able to ask questions 24/7.

• All financial, ownership and legal information and points of contact to answer questions.

• Frank and honest communication.

• You understand what it means to partner with an investor.

• Confidence the money will grow and be returned.

• Terms that work for the investor and the business.

• Issues and concerns are communicated openly.

• Consultation on significant capital expenditures.

• Timely reports.

• Proactive communications.

• Proof of results.

• No surprises!

Common business mistakes:

• Slow, sporadic and inconsistent response to emails and request.

• Not providing accurate or complete information.

• Not knowing what you are getting into, i.e., a long-term business relationship.

• Unrealistic expectations – thinking you will get money by just asking for it.

• Slow responding to inquiries or requests.

• Poorly written emails.

• Late to meeting.

• Poor administrative support (rude secretary).

• Unrealistic expectations.

• Not understanding equity.

• Hesitating when answering questions.

• Slow getting documents to investor.

• Poorly written documents and spelling errors.

• Unrealistic financial projections.

• No clear plan or strategy.

• Little grasp of competition.

• Inconsistencies.

• Slow responding to inquiries or requests (emails, phone calls).

• Hiding or covering up anything negative.

• Giving poor references (finding out later that they are family).

• Dirty and unsafe working environment.

• Littering, throwing things out the window or on the street.

• Being rude to staff.

• Presentations that are not genuine (i.e. over the top or trying too hard).

• Trying to hide something because you are afraid the investor will tell the government.

• Not answering questions directly; talking in circles.

• Being disorganized; not knowing where to find important information about your business.

• Walking away at the last minute.

• Not willing to share control.

• Not being direct about concerns; talking in circles.

• Not telling the investor when there is a problem or bad news.

• Not telling the investor about a significant change in the plan.

• Taking money for personal purposes and thinking there will not be any consequences.

• Not following plans.

How mistakes are perceived by the investor:

• Expensive: You are not ready for an investor or you think money is free/easy.

• Risky: You will not be accessible and may hurt the investors and/or RENEW’s reputation.

• Expensive: You don’t respect the investor’s time and will require too much handholding. You don’t understand equity.

• Risky: You may not be trustworthy.

• Expensive: You are not ready. You have no plan.

• Risky: You are inconsistent and unpredictable. You are unrealistic.

• Risky: You are hiding something and will likely be dishonest in the future.

• Expensive: Your business is wasteful and thus will waste the investor’s money.

• Risky: You might be violating labor laws. You have high staff turnover and low productivity.

• Expensive: Due diligence will be costly and time-consuming because you are not organized.

• Risky: You are hiding something. Could mean you are distrustful.

• Risky: Leadership doesn’t want to give up control and only wants money (doesn’t understand equity). Leadership won’t take outside advice. Leadership will be difficult to work with.

• Risky: Leadership is dishonest. Leadership cannot control their business. Leadership is making bad decisions.

Hints to help you succeed:

• Respond to emails and requests that day.

• Be on time to meetings.

• Check your spelling and formatting.

• Get help with your documents.

• Understand that equity is giving up ownership to gain capital for growth.

• Practice your presentation out loud beforehand.

• Check your spelling – get professional help.

• Respond to emails and requests that day.

• Have your secretary be attentive to investor calls.

• Arrive early to meetings.

• Have a clear vision and give a concise, honest and direct presentation.

• Be responsive. If delayed explain why.

• Have your documents printed and ready.

• Be familiar with each section of your business plan.

• Know exactly how you wish to use the investment.

• Be realistic with your projections.

• Disclose everything. Don’t hide mistakes.

• Be responsive. If delayed, explain why.

• Admit mistakes; don’t try to hide negative news.

• Have good references that are not family.

• Make sure your accountant and lawyer are credible.

• Be ahead of schedule.

• Demonstrate good customer service.

• Clean and minimize waste.

• Ensure you are not violating code.

• Be kind to your staff.

• If dining with an investor, offer to pay the bill.

• Make sure receptionist is friendly.

• Be clean and groomed.

• Be responsive and available.

• Be honest. This is your last chance to share bad news – don’t let them find it first.

• Have someone available to gather documents.

• Remember…be honest; the investor will consider it a good sign.

• Be ready to share control.

• Be direct and honest about your needs and expectations.

• Don’t just walk away. Talk through it.

• Understand you are getting into a long-term relationship.

• Tell the investor when something is going wrong.

• Be responsive.

• Send in reports on schedule.

• Provide accurate and concise reports.

• Inform the investor when you are making a major decision.

• Stick to a plan.