Insights

2 Simple Considerations That Help To Secure Investment During A Recession

Thursday 22 December 2022

Something that has been on everyone’s minds recently has been the fear of a looming recession.

Previously, Gary and I have talked about how even recessions have a silver lining and how there are always opportunities to come from them.

In our most recent episode of Extraordinary Entrepreneurs Together, I continued this conversation, this time with Ross Faith from the EHE team Both he and I have a lot of industry insights to share from personal experience and working with investors – this led to a fascinating discussion about funding trends, seeking investors, and what you might expect from the next 12 to 18 months.

To quickly recap our conversation from our previous blog, there are three reasons why a recession is not as intimidating as some might think:

1) Recessions are temporary – recent projections from the Bank of England predict that inflation should be back under control by the middle of 2023. This suggests that this recession should hopefully be short-lived.

2) Good companies and investments do not become bad overnight thanks to external complications – Covid-19, the war in Ukraine, and other external factors are driving this recession. As a result, successful entrepreneurs and investors will still be interested in backing a good investment as they know they will get a return when the market recovers.

3) Banks are being far more conservative with providing loans – this means that more “traditional” funding might be harder to secure. This provides entrepreneurs and private investors with the chance to step up and offer a loan at a far more reasonable rate than the banks.

All of this combined means that while money might be tight now, things ought to recover soon. Additionally, entrepreneurs and private investors are more likely to see the big picture and the positives. If you can convince them that you are a good investment, they will back you – you might well be able to secure funding for better value now than when the situation improves.

Ross: “A recession is just a point in time; investments are never going away. Investors will always look for the right investments to back.

In these difficult times, investors and entrepreneurs are going to be a lot more cautious about risks and their impact. Ultimately, in our entrepreneurial community, it’s all about people and how well you can portray what your business proposition is. 

What I have found personally, for example, is that businesses that help other businesses or entrepreneurs reduce costs, gain more traction than those focused on sales. 

If there needs to be an initial period of sales generation, that is going to be tough next year – it might be a riskier investment. However, a product that is going to help businesses reduce their costs could be game-changing.”

So, what can you do to portray your business as well as possible? There are two things to consider.

1. Be realistic about valuations and the market

Being realistic about the valuation you are asking for is important. Between there being greater perceived risk and money being tied to supply and demand, it is important to be objective about the amount you expect an investor to be prepared to offer. 

Something I have seen (and done myself!) is entrepreneurs valuing their company at far more than it is worth at that point in time. Surrounding yourself with professionals, entrepreneurs, and those who understand the markets allows you to take their advice.

Ross: “I can’t think of a time when inflation was as strong as it is now. However, there are ways to get around it. That is engaging with the right investors for the right levels of investment.

Strong relationships with the people who you are looking for to help you on your journey is going to be paramount. We’ve spoken on a previous podcast about how to find the right investors to help you.

There also needs to be some balancing in how much you ask for. You can’t put too much fat on the numbers, but don’t leave yourself too short. You’ve got to ask for the right amount that you need.”

2. Create an engaging pitch

A good pitch deck has to have certain bits of information in it. It has to tell the story of why you are doing what you do, what your next steps are, your ultimate vision, and why this is an investable opportunity. However, no pitch deck will be perfect.

Investors get hundreds of pitch decks put in front of them every year. All of these will have weaknesses. You have to minimise those weaknesses and focus on being the best pitch out of the hundreds crossing their desk. 

With the demand and competition, this is now more important than ever.

Ross: “Don’t use jargon or waffle in your pitch deck – get the point across clearly and quickly. As Guy says, a lot of investors are looking at lots of pitch decks. You want them to get the message succinctly from yours within the first four or five slides in the first five minutes. 

What excites investors is knowing about the proposition quickly. They need to know what needs to happen, how much you need, and how much you are offering in return. 

If they don’t get the message quickly or it is not realistic, they get turned off. Having people to bounce ideas and pitches off helps you build a pitch that works.”

When looking to secure investment, especially during a recession, having a good community around you is priceless. It allows you to network and find the right people to help you in your journey, and provides you with advice and support along the way. 

At EHE, we work with both entrepreneurs and investors – we are all about helping entrepreneurs. We’ve created a lot of resources to support our community: on our website, you can find blogs and podcasts offering support, and our book – Faster Growth Through Funding – covers content such as pitch decks and strategy. 

If you want someone to help walk you through your pitch deck and provide feedback on what looks good and what needs work, let us know! Join our community of entrepreneurs in order to be part of the discussion around all things to do with business growth, and drop us a line if you’d like to learn more about the specific support we offer at EHE Capital.

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