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If you want to attract sound capital investment you need to make sure your business is investment-ready. You also need to understand how investors operate, because this will help you to find financial backers that are right for your business. There are two main types of capital investment:

• private equity finance - where investors provide funding in return for shares in your business that are not listed on the stock exchange
• debt finance from financers who provide capital in return for repayment with interest at a later date - eg banks

Differences between private equity finance and bank loans

Banks have a legal right to charge interest on a loan, and to demand repayment of the loan by a specific date. This is the case whether or not your business succeeds once you have taken out a loan.

Banks usually require you to secure your loan against business or personal assets - such as your home - which could be extremely risky if your business does not succeed - see bank finance.

However, private equity investors do not have these legal rights to interest and capital repayment, so the only way they can get their money back is through a capital gain if your business succeeds. They will want to take out more than they invested when they exit from your business.

Therefore, they look for high-growth potential businesses to invest in, and are likely to be more hands-on than banks. They can also often bring useful expertise into your business - see equity finance.

Read more on .

If your business has been operating for some time, potential investors will be interested in your past activities so that they know exactly what sort of business they will be investing in. Ensure you clear old debts or liabilities before you seek investment.

Investors will also want to know about your business' intellectual property. See intellectual property: the basics.

You should also make sure that you are ready for investment, by considering:

• why you need funding - ideally for a specific reason such as expansion, or to develop a new product or market
• how much funding you will need when you need the funding by
• does your business have a high growth potential?
• do you have an advantage over your competitors?
• does your management team have the skills and experience that will be required by the growing business?
• how you are going to pay any money back - you must be able to meet any repayments on time, including interest
• what the right source of finance is for you - see bank finance and non-bank finance

For further information see business financing options - an overview.

When potential investors are considering whether to invest in your business they will need to know what it's worth.

How a business can be valued

There are various ways for private equity businesses to establish the value of your business to them. They may calculate the value of the company in comparison with the values of similar companies quoted on the stock market. This involves establishing the price/earnings ratio for your business.

Alternatively, they may calculate a value for your company that will give them their required rate of return over the period they anticipate being shareholders. Read more on .

Another method of valuing your business is based on calculating the value of your assets. There are two types of business assets - tangible and intangible, and you need to include both in your valuation.

Tangible assets are physical, material and financial resources, such as plant, machinery and office equipment. Intangible assets are valuable resources that may not have a physical presence, such as brand value, skills and know-how and trade secrets.

For more information, see business assets.

Discounted cashflow anaylsis

You can also value your business by using discounted cashflow (DCF) analysis. DCF valuation is based on using projected future cashflows to calculate how much your business is worth - see value and market your business for sale.

Potential investors will also want to see how the value of your business is likely to change over time. Milestones, which are markers of how your business is developing, provide one measure of this.

Investors will be interested in the milestones that you have already achieved and the future milestones that your business must reach to be successful.

The main sources of private equity are:

• venture capitalists (also known as private equity firms) - who are likely to provide finance of between 拢250,000 and 拢2 million at all investment stages - see venture capital
• business angels - who tend to fund start-ups and early-stage businesses with smaller investments of between 拢10,000 and 拢500,000 - see business angels

For further information see six sources of equity finance.

Find out what private equity investors are looking for

You will need to find out what potential investors are looking for, so that you only approach people who are looking for businesses like yours. For example, you should make sure that you approach investors who would be interested in investing:

• at the stage your business' development is at
• in your sector
• the amount of finance you are looking for
• in your region

The British Private Equity & Venture Capital Association (BVCA) provides information about private equity firms' investment preferences.

If you are looking for private equity investment, you should also find out about the investor's own funding cycle. Private equity firms raise their own funds, invest them, and reap the profits over a period of between five to eight years.

It's useful to find out when your potential investor raised their last fund, how big it was and how many investments they have made. Have they already invested in businesses that you could usefully collaborate with? Or have they invested in your competitors?

Also, private equity firms usually finance new businesses early in their funding cycle, allowing time for the businesses to grow and return a profit on the investment. Towards the end of their funding cycle, private equity investors are more likely to invest in mature companies that are likely to offer quick financial returns.

Your business should look for investors that can offer useful knowledge, experience and relationships, as well as capital funding.

Your presentation to secure finance should show that you are confident, trustworthy, and an expert in your field. It should follow a logical, clear structure and last approximately 20 minutes.

Introduction

With your first slide, you should introduce yourself and your business and summarise the content of your presentation and the overall structure.

Define the problem your business is tackling

Your product or service should solve a problem that potential customers have or fill a gap in your market. You can explain how your business provides the solution and show the growth potential.

Describe your solution

Focus on the product or service in detail, ensuring that everything you say is relevant to the problem. Use case studies and facts and figures, and you can also include your sales history, testimonies from real customers, or competitor analysis.

Introduce your team

Discuss your team. Investors see a company鈥檚 team as critical to driving the business forward. Be prepared to answer questions about recruitment and your role within the company.

Present your business plan

You will need to have a comprehensive business plan incorporating a detailed marketing plan and realistic financial projections.

Potential investors will be specifically interested in:

• financial forecasts, including your funding requirements
• your plans for the business
• whether the external investment is appropriate

Tailor the information you deliver to every investor you approach. See write a business plan: step-by-step.

Investors and lenders will want to know your intentions about the long-term future ie if you plan to stay in the business or if you want to grow it and sell it on.

Detail the investment required

Potential investors need to know how much money you require to make your venture work. Explain how you calculated the figures and how much cash you need to take the business to specific points or milestones. You should also highlight what would happen if a problem arises, eg a product is delayed.

Highlight the return on their investment

Show potential investors the benefits of their involvement and how you can improve their business. Be specific - have figures, outcomes and scenarios prepared and ready. Listen to the questions asked, take notes, be open and flexible, and be prepared to come back with revisions and new ideas. They will want to know what their financial returns will be eg how repayments will fit into your budget, when they can expect dividends and what they will be.

Key milestones

Discuss your upcoming goals and when you plan to achieve them. This part of the pitch illustrates how well you have thought through the detailed steps it will take to start making a profit.

The business exit strategy

Investors won鈥檛 sign up without having a plan in place to exit. Explain your exit strategy and make a final push to persuade them that this is a great opportunity.

Following the pitch, allow time for potential investors to ask questions.

Once you have decided to seek equity finance, you will need a comprehensive business plan incorporating a detailed marketing plan and realistic financial projections.

You may find it helpful initially to hold discussions with your business adviser and to research potential investors.

Consider the following issues:

• how much funding you need and what the funding is for
• how much control you're hoping to retain and the skills the business needs
• how long you need the funds for

Any potential investor will be looking for a number of core issues in your business plan:

• what your funding needs are
• whether your plans for the business are realistic
• whether your venture is appropriate for external investment

Your business plan should seek to address these issues and you should tailor the information you provide to each investor you're approaching.

The plan should include a series of detailed financial forecasts, what you intend to do with the funding, how you'll repay the investor, your management's level of expertise and what the investor can expect in return - see tailor your business plan to secure funding and write a business plan: step-by-step.

Approaching investors and networking

Approach shortlisted investors directly through an introduction or contact, or through their association or network. Remember that many private investors are interested in specific industry sectors or geographical regions, so ensure your shortlist only includes suitable candidates.

Networking is an important way of finding investors, so go to events organised by your chamber of commerce in order to introduce yourself to people and get your business known to potential investors - see Northern Ireland business networks.

It is also possible suitable candidates can be found through recommendations from the industry you operate in or its associated network.

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For further information see secure equity investment: six top tips.

Most investors will have heard many pitches before, so it鈥檚 important to impress them with your idea and encourage them to trust you so they will consider investing.

Be honest in your pitch

It鈥檚 good to be confident and passionate about your pitch, but make sure you don鈥檛 exaggerate the facts or figures. Be honest and avoid presenting graphs or charts that are unrealistic.

Be prepared for criticism

Listening to an investor criticise your idea can be difficult but avoid getting defensive. Focus on any flaws that may be identified and offer solutions. Take each rejection as an opportunity to improve on your delivery for the next pitch.

Explain why you want the money you have asked for

You should provide a clear outline of where the money is going. Think about how much money you need to achieve your primary objectives, and balance this figure with the portion of equity you鈥檙e willing to give away.

Provide facts

You want investors to trust what you鈥檙e saying in your pitch, so use facts and figures to back up your projections.

Be yourself

Try not to take on a persona or role when standing in front of a panel - be yourself and be honest.