How do you find a needle in a haystack? And, if you are the needle – within our case a UK based engineering business developing a first-to-market innovative new diesel engine – how can you structure yourself to be found? Attracting investment could be particularly challenging when you're working on something which is not done before. What you'll need would be to create a business which will stay ahead of everyone else and endure scrutiny, communicating effectively every step of the way.
Investment comes in all manner of guises. The most obvious, financial commitment, isn't only investment that you will need to attract. You will need to convince talented people to invest their careers with you, experts who are likely to dedicate their working hours and potentially stake their reputations on your innovation. The most innovative companies will attract the curious which works well. You will need imaginative individuals who bring skills, insight and practicality in to the business. Furthermore, you will have to take everyone along with you on the journey. It is one thing to have an employee to create enough money to pay their mortgage but people wish to feel proud of the job they do as well as their organization. If your team is motivated as you become through design, testing and prototype stages, you'll find them turning out to be vocal advocates for what you're doing. This attracts more talent willing to invest their amount of time in your company.
The company's idea is only as strong because the team that is going to deliver it. Your company will need a depth of technical, finance, operational, communication and entrepreneurial skills in place. A well-balanced team supports one another, understanding the goals and everyone's part within the challenge. Investors will see the teamwork and learn how a group with 'linked arms' can hold together successfully when one area needs more focus.
Financial investment is clearly vital to any organization. We have raised lb30 million to date and continue to raise funds to develop our innovative diesel engine. Most from the money raised up to now has come from individuals who inherently “just get it”. Although you will need to have your spreadsheets in ship shape as well as your plans well-proofed, an investor's decision to finance a new product often comes after you respond to these four questions:
- Does the marketplace want it?
- Can you prove that the offering meets market demand?
- Will your product work?
- Can you protect your products?
An investor will do their diligence checks but they will also need believe in both you and your product. Having a reputable team is essential. Does the team have experience of el born area? Have they achieved something of this magnitude before? Will the way they work attract the investor?
An investor or adviser that's not delay by a higher risk opportunity really wants to see that the company has corporate governance in position and it is transparent about its operations. Despite being privately-owned, we govern ourselves just like a PLC with the constraints required. Not only will it help our company run smoothly, it offers transparency to current and prospective investors.
Due diligence will be performed before any investment and you need to have your processes working well and also the right people on the team to ensure that investors help you are prepared when ever time comes to go to market. Your path to market is going to be questioned. We spent significant resources and time on market research to back up our views that the workboat market was hungry for a 300hp diesel outboard engine. We also established a network of contracted distributors and support centers, providing a ready route to a sizable international market. The distributors and resellers' faith in our innovation is yet another endorsement with what we are doing and provides reassurance to an investor that we're dealing with the market in your mind.
Once you have your story straight, getting into front of the right investors – those who will also be going to 'get it' – takes care and frequently a well-connected intermediary. Having an agent by having an extended network of investors who understand the risk/reward opportunity your organization offers will be invaluable. Our Chairman and broker both have an enviable 'rolodex' as well as their capability to establish contact directly with investors saves us from getting stuck within the sifting process of financial advisors. A financial advisor who filters prospects for their clients could be a difficult spot for a pacesetter to traverse. They are in place, motivated and rewarded to locate opportunities that bring in a great return and reduce risk. It means they may be not as likely to recommend an investment in a new market or with a first-to-market product despite the significant potential upside.
The investors' fourth question 'can you protect it from punctures?' must be addressed early. Get your patents written and guarded as quickly as possible. It is worth dealing with experts, as needed, to make sure that your innovation cannot be copied legally. Few investors may wish to move ahead without that assurance.
Innovators can too often get up to date within the technology and pay less attention to the way they will commercialize their ideas. There is a lack of appreciation to the fact that getting a product to market – and properly supported – is a task just as daunting and time-consuming as those of the innovation itself. Any funding source is less likely to engage if you can't convince them that you understand this.
Communication is vital at every stage. You will have to communicate effectively together with your staff and partners, for your existing shareholders, to the market and industry and also to the City. You have to keep everyone updated in your progress. You have to keep your buzz burning. When you get a opportunity to step in front of the prospective investor, be ready. The elevator pitch is much more than a clich̩ Рit is a vital tool of the trade. Potential investors need to understand your work in the first 5 minutes, and then are interested in within the next ten.
Product innovation needs patient investment. Unfortunately, most private equity firms require cash back in a relatively short amount of time. They're not geared up to support innovation that requires investment through each stage from R&D to delivery. Innovators need investors who are confident with a longer-term return and not looking to create a quick profit. The Patient Capital Review, announced by the Pm in November 2022, sets out to identify the most effective ways to enhance the availability of patient capital for growing businesses. The review will explore options to address the standards constraining quoted companies and fund managers from making longer-term investment decisions. Like other innovative businesses, we're watching this review closely and with bated breath with this like a really positive step for innovative organizations like Cox.
The UK Government is nice at encouraging entrepreneurship and the company needs to be up to date on the support available. There are incentives for technology the likes of ours, for example R&D tax credits. There will also be tax incentives for those who purchase innovation. For example, the EIS scheme has been pivotal to all of us raising capital as we have progressed along our journey from concept and early design stages towards market launch. While we are advocates of this incentive we do feel that the cap for EIS investment is placed too low for companies like ours which are game changers and wish substantial capital prior to getting into production. However, the EIS scheme has been a positive mechanism previously for businesses like ours to gain access to capital. Our company is geared up for EIS investors and we make sure that our communication references the scheme when we raise funds.