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Businesses “misunderstand” what investors want

A new study by Innovate UK has found that many businesses are unaware of the key criteria investors are looking for when they are trying to get funding.

It means British businesses are missing opportunities to secure investment, grow and scale up, according to Innovate UK.

Its report, Scaling up: the investor perspective, has compared the views of investors and small businesses on the factors for success.

It has found that there is a “mismatch” between businesses and investors. Both investors (96%) and businesses (82%) agree that a strong management team is the most important ingredient for scale-up success. In fact, 97% of investors said a weak management team was the number one deal breaker.

However, the study has found that business leaders consistently underestimate the value investors place on “softer” aspects, such as resilience, communication and chemistry:

  • 78% of investors thought chemistry was important, compared to 53% of businesses;
  • Poor communication was a deal breaker for 84% of investors, compared to 46% of businesses;
  • A lack of adaptability and resilience was a deal breaker for 87% of investors. Only 58% of businesses thought this was the case;
  • 70% of investors felt cultural fit was a deal breaker; only 50% of businesses felt the same.

Three-quarters (74%) of investors reported that they have turned down an investment opportunity simply based on gut feeling.

Meanwhile, businesses also mistakenly believe that issues like “timescale to exit” and the “fit with an investor’s portfolio” are more important that they actually are. However, attributes such as drive and passion are seen as equally important by both investors and businesses.

Dr Ruth McKernan, ceo of Innovate UK, said: “Attracting investment is often a challenge for innovative businesses and the brilliant people at their heart. At Innovate UK we are increasing our focus on connecting innovators with both Government grant funding and venture capital investment, to turbo-charge their journeys to success and the UK’s economic growth.”