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Young Entrepreneurs

Securing investment and helping your business to grow

Once you’ve taken the plunge and turned your idea into a successful business, it’s likely that you’ll need to secure investment to help expand your company. But it’s not as simple as approaching potential investors and just walking away with the cash. You will need to know your company inside out and be prepared to justify what the money will be used for.

I set up Chemist Direct in November 2007, and today it is Europe’s leading online chemist, offering more than 30,000 health and beauty products. By the end of the first year of trading, the company had a turnover of £5m, but I realised that I needed to secure investment to help the business to grow. In March 2009, the former founders of Skype, Niklas Zennstrom and Janus Friis, now of Venture Capitalist fund Atomico, invested £3m. This allowed me to expand the product range, move to a new large automated site and build a strong management team.

I believe that an important factor for investors is how your company stands out from competitors. Does it offer a completely new product or service, or offer it in a new way? A large part of the success of my company is the fact that when it launched, there were few other online chemists. This resulted in high revenues and helped attract investment. The healthcare industry was also relatively untouched by technology and we have tried to disrupt a relatively traditional industry and utilise the power of the internet.

There are two main types of business investors – 'angel investors' and 'venture capitalists'. An angel investor is a person who provides capital for a business. They may be a retired entrepreneur or executive who wants to mentor other entrepreneurs and provide advice and contacts.

Venture capitalists provide pools of capital from a combination of sources such as private investors and institutions like banks. In exchange, the investor receives a share of the company’s equity, and normally seeks a non-executive board position so they can help with the strategic direction of the company. According to the British Venture Capital Association, about 50 per cent of venture capital financing is for expansion, which was the case with me. I didn’t go out looking at lots of different VCs. I met Atomico through a mutual friend and I was really impressed. I felt that they could add a lot of value in terms of their experience and contacts; they also had an excellent track record with Skype and had been entrepreneurs themselves.

Investors are looking for high-potential businesses run by a team with passion. Although it’s important to get potential investors excited about your company, don’t present outrageous projections as they won’t take you seriously. It’s also important to show how responsible you are in managing and growing your company. I started the company in a shed at the bottom of my garden to keep costs down and paid myself a minimal wage. It is essential to show that you are being prudent and ploughing resources straight back into the company.

I also invested my own money into the business which is essential to show you have skin in the game. It is vital to show that you have made a commitment to the company and believe in the product or service which you offer. Investors will feel disinclined to invest in your business if you haven’t.

As part of your pitch to investors, refer to your previous experience and explain what you and the rest of the team bring to the company. Before setting up Chemist Direct, I previously worked as a management consultant, working with Citigroup, Deutsche Investment Bank, SAP and Deloitte Consulting. This involved project managing complex change management initiatives, working with decision makers on processes, people and systems. This allowed me to see first-hand how to make a difference which has helped me when running my own business. It’s also essential to be prepared before meeting with potential investors. Make sure that you provide a clear business plan with your long-term goals, a financial plan, a marketing plan and customer research. You need to know basic statistics about your company including revenue, users, activity and competitors.

Don’t forget to do your homework on the investors too. Research other companies they have invested in and look at their career andbusiness experience to find out how they could help you. Atomico invests in disruptive technology companies and the founder also set up Skype which had more than 309million registered users within five years of its launch. As well as securing capital, I wanted to tap into the team’s expertise to help expand Chemist Direct, and increase customer numbers and sales.

Mitesh Soma is founder of www.chemistdirect.co.uk