10 steps to a financeable investment project

Raising equity or debt finance for an investment project is often not easy, and many business developers fail to get past the early planning stages. This is particularly true when significant third party financing is required and is often due to the expectations of investors or lenders not being adequately addressed.

Red Jay Associates has experience of having worked on a wide range of investment deals, covering a spectrum of sectors, size, complexity and financing needs. We can quickly identify a project’s strengths and weaknesses and provide appropriately tailored assistance.

Outlined below is our list of the "top 10" focus areas to be addressed to successfully attract investment or financing interest in an investment project.

1. Profile your potential investors and financiers

Perhaps stating the obvious, but a lot of effort and re-work can be avoided by properly identifying your funding needs and the likely sources of equity or loan funding at the outset.

2. Build a great team

It is true that people invest in people, therefore having the right team in place (including employees and advisors), and showcasing their skills, is a critical component of any investor pitch.

3. A strong economic case

The economics of a project are generally driven by five components; namely revenues, capex, operating costs, taxation and the timing of cash flows.

4. Know your target market

Prospective investors will place a great level of focus on the market analysis for your goods or services - if it not very convincing they will simply not invest.

5. Understand and explain the numbers effectively

For a significant investment proposal there needs to be a credible financial model in place which should produce a range of project performance measures such as eIRR (equity internal rate of return), IRR, cash yield, payback period, margins etc. Investors also need to be very clear on the cash resources required to turn their proposal into reality.

6. A professional approach

Investors and banks judge what they see - expecting clear responses to questions, credible planning, a good quality data room and an investment memorandum or prospectus that presents information in a comprehensive and balanced manner.

7. Manage uncertainty

There is a direct relationship between risk and the size of returns expected by a potential investor, e.g. higher risks result in higher returns being expected by investors. Risks need to be fully explained - unanswered questions reduce what an investor or banker will be willing to pay in and they will have expectations on how certain risks are dealt with commercially - e.g. construction risk in a project financing.

8. Have legal documentation in place

Investors generally prefer projects that already have bankable legal documents, as this can save a lot of time and money when trying to close a project.

9. Understand the investor value proposition

Seeking investment and financing is a negotiated process – to do so successfully you need to have a good understanding of what your business proposal is worth in the market and how new investors will realise that value when they wish to exit.

10. Financial management discipline

Professional investors and banks have high expectations for the financial stewardship to be applied in an equity or debt financed project - you need to show that there will be effective arrangements in place to control the business and manage its daily financial requirements.

The list of 10 focus areas above is not definitive as each situation is different, but it is a good start. Professional investors and financiers generally understand that there are unknowns in any investment proposal, therefore the main focus for any developer is to demonstrate that they have the passion, skills and commitment to deliver results!

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Red Jay Associates Limited is a specialist finance consultancy advising on corporate finance and business transformation, we would be very happy to discuss your business and develop a proposal for how we could support your needs. For more information please contact Ed Rogers on 07771 913528 or mailto: edmond.rogers@redjay.co.uk. Visit our website on www.redjay.co.uk