Page 5: Investors
There are different types of investor funding available to businesses. These are from:
- shares - Duncan raised funds from shareholders by floating his Quality Care Home business as a public limited company on the stock exchange. Shares are especially relevant to large projects needing several million pounds of investment.
- venture capital - Venture capitalists invest in businesses by providing funds, business advice and access to contacts, in return for a share in the business. Individual venture capitalist investors such as Duncan Bannatyne are called business angels.
Before investing, Duncan Bannatyne looks for several key elements in an entrepreneur's business plan. These reflect his own approach to investment:
- Do they understand their product, customers and the market?
- Have they worked out what the costs and projected profit will be? Clear research into the market and projections for revenues and costs is important. Duncan would not consider investing in a business which lacked a detailed business plan.
- Do they believe in their product and are they willing to work hard at it? Duncan believes entrepreneurs need to show conviction by investing their own finance into the business.
- Will it give 20-25% return on investment? Unless the idea can yield around 25% return on initial investment, it will not be worth the risking.
- What is the exit strategy for investors? Venture capitalists such as the Dragons usually seek to exit the business after three or four years. This enables them to recover investment costs and ideally, generate profit from the sale of their shares.
Receiving funds from venture capitalists can provide benefits for businesses but also some risks.