Daniela Tsoneva, Investment Associate at Calculus Capital, provides her views on securing the right investor for your business.


Calculus Capital has been supporting smaller business for nearly 20 years. At the moment, we see over 500 investment opportunities and review over 100 business plans each year covering a variety of sectors, business models and stages of development.

Based on my experiences, I thought I would share a few words of advice for entrepreneurs embarking on the fundraising journey.

It is all about the people

The first thing to understand is that securing private equity investment is the beginning of a partnership. Just like any other partnership, you need a good understanding of each other, a shared vision and an alignment of interests. These are key to moving forward in tandem.

Personally, the most important consideration as a private equity investor, is whether I trust that the entrepreneur is willing to listen to my reasoning. Disagreements happen, what matters is how they are handled. A successful partnership is predicated on all parties understanding each other’s concerns and finding a way forward that is acceptable.

Know your partner

Private equity and VC investment are not the same, there are many firms that cater to the various needs and requirements of a business. Fundraising is difficult enough and most entrepreneurs focus on just getting it done, however, understanding the answers to the following questions will help aid your decision as to who is the best fit for your company.

  • What expertise does the investor offer?

Institutional investors offer more than just money. The investment team will often have decades of experience and a network of invaluable contacts. Whilst you are the undisputed expert on your business, the investor will have been through the growth journey many times and seen both successes and failures. Their experience could allow you learn from the mistakes of others.

  • How do they manage their investments?

Investors manage their portfolios in different ways, it is important to understand what role they want to play on the board of directors. Make sure you have people on the board that you respect and who can bring insightful opinions and varied experience. A good investor will mentor you and help you through difficult times.

  • What are their performance expectations?

Early stage businesses are inherently risky and despite everyone’s best efforts, start-ups do fail. Always ask what a fund’s expectations on return and failure rates are as this forms the basis on which your future performance will be judged.

An early stage investment fund can expect as many as 50% of its investments not to deliver a successful exit. If your business is one of the success stories, this means that the fund’s overall return depends on you and your performance with an exit high enough to compensate for the failures. It is possible that your exit may need to deliver 10x+ the invested capital. It is also possible that this expectation changes over time – this should be an on-going conversation with your investor.

  • What are their exit expectations?

Make sure you and your investor are in agreement from the outset what a potential exit might look like. Do you want to remain in this business for life? Do you have 5 years or 10 years to deliver an exit for your funder? Is an IPO acceptable? Be mindful that a trade buyer may expect the founders to stay on for a transition period of 1-2 years and a private equity buyer may require even longer.

Headline price is not all that matters

Whilst it may feel like a high valuation is a stamp of approval from the market – the devil is often in the detail. A package of a high headline price and a complicated capital structure can create divergent incentives and, whilst this may be right for your business, it is important to understand the implications across various exit scenarios. An experienced lawyer can be crucial when negotiating terms.  Watch out for the following points:

  • Preference shares with fixed dividends – these guarantee a financial return to the investor irrespective of how the company performs. The more time passes, the more the holder of preference shares benefits;
  • Participating preference shares – these can often lead to the holders receiving more than their proportionate share of equity on exit;
  • Liquidation preferences – these are a form of downside protection which is a standard ask for institutional investors;
  • Option schemes are a great way to align incentives and motive people at all levels, but be aware of what you are signing up for. Be mindful of things like exercise price and vesting, conditions under which people lose options and tax treatment.

The valuation in an investment round is the first step on a ladder. Your investors are focused on the last step on that ladder and you should always be mindful of it as well; the higher the entry valuation, the higher the exit expectation.

Think about what it would actually take to achieve the growth expected. If the target seems unrealistically high, this will create a future conflict around your board table.

Final thoughts

Regardless of the investor, the company you run after receiving funding will not be the same as the one you ran before. An effective governance structure installs checks and balances for senior management, including the founders. You will now have to convince a group of outsiders that your vision is the right way forward. This is a big (and sometimes scary) change for many entrepreneurs but it marks the end of the company’s adolescent years.

Daniela will be attending the Business Funding Show on 22 February providing industry expertise to entrepreneurs looking to raise growth capital. To find out more click here.

If you have a fast growing business that is looking for investment, please send details to: [email protected]