Your history as a businessperson

While all investors are not the same, what they have in common is they want to know who's running the business. (That's you, by the way.) You're the leader here, even if it's just you (and your cat). If the business has no track record, sales, clients or history, then they'll be very keen to know more about you since that's who they'll be investing in. They'll want to know about your passion for the product, your experience in the industry and why you love working in that sector. They'll also want to know about your past experiences: your successes, failures, the risks you've taken, the challenges you've faced and the strategies you've applied to deal with those challenges.

If investors are nervous investing with you, or they don't know you well enough to trust you, you can use your past success stories to flag how you'll deal with future challenges. They need some form of comfort to get them over the line, and showcasing how you've dealt with problems in the past can be the ticket to success. Have your stories ready to go as you'll never know when you need to tell them.

I recall a time when I was doing a national roadshow to raise money for the pub fund. I was meeting with a raft of family offices and high-net-worth individuals, but it didn't go to plan.

A summary of your team

In addition to knowing about you, investors will also want to know who's in your team. They'll want to invest in a strong management team with a good track record in their industry. If you have a team, this is what they'll want to know:

• Who are they and what role will they play?
• Who have they worked for in the past?
• Who reports to whom? (You can insert an organisational chart to showcase this.)
• Who is the second in command (2IC) and what succession plan have you put in place?
• What are your growth plans?
• What markets or new products will you expand into?
• What is the time frame for that expansion?
• What will you spend the investors' money on?
• How long do you expect the business to last?
• What are your exit strategies?

Description of your asset(s)

This is where you describe the physical asset of what you're offering. For us, this is where we describe the actual hotel or pub we're buying or renovating. Our investors need to know the location, the physical size of the property, how many people it seats, the number of bars, accommodation rooms, gaming machines, what local infrastructure is nearby (shopping centres, movie theatres, football stadiums, schools, etc.), the car park capacity, and so on. We'll also discuss the developments in the area, such as new housing developments, road constructions and freeway extensions.

If you're fundraising to finance a renovation or refurbishment, describe the plans you have and, if possible, include any drawings or renderings from the architect as this will make it easier to sell your proposition. You should also include a set of financials that detail the extra sales, revenue and profit that the renovation will generate.

Financials and projections

This part of the plan is where you list all your financials, such as your profit and loss statements, balance sheets and also projections. They'll want to know the detail behind your sales projections, revenue, expected returns and the time frames for these returns.

You would have done some projections with your accountant on what the business will make and from this you will work out what you can comfortably pay investors.

While it's tempting to get ahead of yourself and get excited about the potential, it's always best to under-promise and over-perform. Investors like to know what they're getting into and it's easier to manage an investor who has received the return they expected than to justify why you didn't reach the expectation you promised. Be conservative.

If you aren't already acquainted with your profit and loss statement and balance sheet, ask your accountant to take you through it — or even better, enrol in a short course at TAFE or with the local council and learn the basics of how to read your financial statements. It'll be money well spent.

Here's a sample profit and loss statement. Generally speaking, it's good to provide three years' worth of projections.

Structure

There are many ways to structure your business. This must be done with the input of your accountant as they can see the benefits, costs and risks of the various structures. The structure you decide on will be determined by the stage of growth you're at. For example, if your business is expanding rapidly and you generate more than $2 million within a 12-month period, this may trigger certain corporate laws and may mean you need a trustee. If you have more than 20 investors, you may also need a trustee, so make sure you engage an accountant and a lawyer who can give you the best advice for your situation.

Risks

Investors don't like surprises. Any. Ever. Especially when they impact their return on investment. That's why it's vital that you outline any and all risks that they may face if they invest with you at the start. It could be legislative changes, increased competition in the area, a new tax or even a pandemic! (Who saw that coming?)

One of the fastest ways to work out what might go wrong is to focus on the riskiest assumptions. These are the factors that could send you reeling. We use our pre-mortems to identify them and then work backwards to see how we can mitigate this risk. Here are a few events we cover off when conducting our pre-mortems:

• What if an investor wants to exit?
• What if a cashed-up competitor sets up a rival pub in our area?
• What if a key employee gets poached by a competitor?
• What if the government changes the legislation?

It's worth documenting the risks your business faces. You'll need to account for them in an investor pitch at some point so you may as well get brainstorming now.

A lot of my mates work in the start-up sector and have to deal with these kinds of riskiest assumptions:

• What if our whiz-bang chief technology officer, who developed our code, leaves and takes the source code to a competitor?
• What if the celebrity we've hired to spruik our company has a fall from grace — or worse, gets arrested for breaking the law?
• What if our preferred social media platform ‘cancels' us and deletes all our followers?
• What if our biggest client walks away?
• What if our data gets hacked?
• What if interest rates go up?
• What if our key client doesn't pay their invoice?

These are just a few of the scenarios worth planning for so you can put your best foot forward, secure those investors with confidence and have the highest chance of succeeding.

Some investors will want to know how you dealt with COVID-19. Have your stories prepared. Few industries have suffered more than hospitality and events. But now that we're living with it, I work hard to share with my investors how we're managing it. They're worried about how their investment will be impacted so we need to keep them fully informed of what we're doing now, and what we plan to do moving forward. We can't change the fact we have COVID in our midst, but what we can do is be on the front foot to ensure they know what we're doing to protect their investment.

Application form

This is the document that seals the deal. If the investor is keen to proceed, this is the document they complete to indicate their intent to invest, how much they want to invest, how they can transfer the funds, the key dates they need to be aware of, contact details for us and our team — and much more. Once the funds have been received, you will need to send the investor a Share Certificate that summarises how many shares they have bought and a timeline for completion of the transaction.

Take note of Murphy's law here and know that this process will take longer than you think, cost more than you think and be more complicated than you think, so give yourself plenty of time to make it all come together.

Confidentiality

You may want to send your potential investors a non-disclosure agreement (NDA) to protect any intellectual property that you own and to deter those who hear your ideas from stealing them. It can feel awkward to ask a high-net-worth individual to sign a document to protect your idea, but you must treat your idea with respect, no matter how fledgling it may be.

Most sophisticated investors are familiar with NDAs, don't have an issue with signing them and may potentially respect you for having the confidence to back yourself and take steps to protect your idea. After all, if you're asking them to invest their money in your idea, they want to know that you're being prudent in protecting the very thing that will deliver them a great return. You can find a standard NDA on the internet, but like most legal documents, you get what you pay for, so take the time to run it by a legal professional to ensure you're protected. That's why people pay lawyers: it buys you protection and shifts the burden of responsibility onto the lawyer to ensure that you're being protected. (By the way, try not to send a 30-page NDA to the investor. That will just annoy them and flag that you're a novice at this. Two or three pages should be sufficient.)

Constitution

The constitution is the playbook your investment vehicle must play by. You'll recall from chapter 2 that the constitution I had with my fund was faulty and nearly cost me my business, so I had to change it. I needed 100 per cent of the investors to vote on any expenditure, which was clearly unworkable because we would have needed to get approval for even the smallest of purchases. If an investor had said ‘no' to a change, that would have put the fund, and me, in a very difficult position. They could prevent the fund from making progress or even ask to be bought out at a higher price, creating a stalemate and freezing the fund from expanding.

Management contract

Someone needs to run the company and that someone is probably you. As the managing director, you'll need to be paid a fee to run the company and be accountable for a whole range of performance measures. This agreement is often called a management contract; it's made between you and the board of directors and will include the following:

• definitions: an outline of what everything in the contract means so that there is no misunderstanding
• fees: what you'll be paid
• key duties: an outline of the specific duties you will perform
• annual review: when it will take place and what it will involve
• performance fees or bonuses: details on what extra fees you'll be paid if you meet the required targets
• your obligations: what the board and investors expect you to do
• the board's obligations: what you and the investors can expect the board to do
• remedies for dispute resolution: strategies for how you, the board and others will resolve any disputes, disagreements or decisions that end in a stalemate
• time frames: a summary of when key activities need to take place.