Very rarely do investors offer funding without careful consideration. Indeed, their decision-making process is multifaceted and time-consuming – something that can be both frustrating and intimidating for those seeking capital.
Taking time to understand the investor decision-making process carries multiple benefits, not least a keener grasp of what to expect when applying for funding. Knowing why and how shareholders reach a decision on whether to back a business can work in your favour, offering touchpoints on which to frame your pitch.
Here, we’re taking an in-depth look at the investor decision-making process, including the steps involved and how things like your ESG strategy can impact their final decision.
- The investor decision-making process in 3 steps
- Why You Need to Know the Investor Decision-Making Process
- How Does ESG Impact Investor Decisions?
The investor decision-making process in 3 steps
Step 1: Making sense of the data
Throughout your pitch, investors will be noting down one crucial thing: data. The statistics, insights, and information you provide about the health and direction of your business are the most important parts of your proposal, and the first things a shareholder will consider when assessing the long-term ROI of their potential backing.
Making sense of the data is, therefore, the first step in the investor decision-making process. They need to establish the sustainability and profitability of your business, and whether the facts and figures you’ve provided make sense in the real world.
That’s not to say you need to go overboard with data provision, however. On the contrary, clarity, focus and coherence are enough to pique interest and avoid overloading your proposal.
Step 2: Analysis and long-term projections
If you’ve adequately aroused an investor’s curiosity, the next phase involves analysing and dissecting your pitch further. This provides shareholders with a deeper understanding of what they stand to gain from investing in you, as well as allowing them to identify ways they could help to maximise their return.
At this stage of the process, investors will be looking to answer questions like “what’s in this for me?”, “how much work is involved?” and “what could I lose if this goes awry?”. That’s why accurate forecasting and predictions for future growth should form a primary part of your pitch pack.
This is also the time when the investor may involve others in their decision-making process, such as data analysts and forecasters. Their role is to drill down and dissect what’s on the table, highlighting the risks and rewards of the project.
Step 3: Values and human connection
By now, investors have stress-tested your proposal by all means available and are effectively on board with the concept – but that’s not the final hurdle. Instead, their attention now turns to you and your business.
No matter how strong an idea, investors need to know you’re a safe bet. That means setting aside ideas, numbers and projections and focusing on your business, your reputation, and how you operate.
More than ever, investors want to work with brands that share similar values and ideas. And it’s not just a matter of them upholding their personal reputation. It’s a means of cultivating a healthy and balanced working relationship, wherein all parties prosper and achieve their aspirations.
As a means of assessing you and your business, it’s likely the investor will want to meet to talk more about your proposal. This is a positive sign, but you should see it for what it is: a form of interview whereby they’re looking to get the measure of your brand.
Expect general questions about yourself and the origins of your business, as well as more focused queries about your philosophy, ethos, and your stance on corporate social responsibility. Remember, this could be the final hurdle before they agree to fund your project, so anything you can do to show you share the same values and ambitions will work in your favour.
Why you need to know the investor decision-making process
Sourcing investment has never been more straightforward for brands with a solid business plan and proof of a long-term strategy. But that’s not to say you should approach funding opportunities with the view that acquiring capital will be easy.
Investors can be a tricky and fickle lot. Their requirements, interests, and appetite for risk can change without warning, and they’re highly susceptible to trends, developments, and market fluctuations.
That’s why understanding how they land on the decisions they make can be a boon for funding-seeking businesses. You need to research potential shareholders with gusto before planning your approach, ensuring you’re ticking all the boxes within their decision-making criteria.
It also helps to recognise the type of investor they are. Shareholders have different ways and means of raising and maintaining capital, so make sure their methods align with your company ethos and direction. You could find your proposal immediately tossed to the side if you target the wrong type of investors from the outset.
In short, then, understanding the investor decision-making process will help you take stock of your proposal and formulate a considered strategy for finding the funding you need. This, ultimately, saves time, effort, and resources, not to mention the frustration of being denied funding after putting together a comprehensive pitch pack.
How does ESG impact investor decisions?
Environmental, social and governance (ESG) is becoming a more pronounced facet of the investment decision-making process. Investors demand more awareness of cultural, societal, and environmental issues from the companies they invest in, simply because they understand that this is the direction in which most markets are moving.
Devising an ESG strategy may not be a priority point for your business, but we can almost guarantee that it will be something investors ask about, so it’s well worth moving it up your to-do list. Creating an ESG strategy can sound like an intimidating undertaking, but it could prove a powerful means of securing the funding you need to take your business forward in the long term.
Here at Perivan, we specialise in helping brands communicate better with their investors and shareholders. Whether you need help drawing up a funding proposal or are looking to streamline your shareholder communications, our experts are here to support you. To find out more about what we can offer, visit the homepage or get in touch today.