How can fast-growth IT businesses secure investment?

Mark Nunny, investor at BGF, has spent the last decade investing in and overseeing the growth strategies of successful tech businesses across a broad range of sectors. Here, he shares exactly how IT companies hoping to appeal to investors can stand out from the crowd.

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This is a contributed article by Mark Nunny, investor at BGF.

Successful funding rounds for IT businesses seeking early stage and growth-capital investment can be difficult to navigate. Understanding what investors look for when assessing a company's growth potential can be pivotal in securing that all-important deal. Here are six top tips for ambitious IT businesses looking to realise their growth potential and capture investor attention: 

  1. Strive for board-level engagement

There are two types of managed service provider; those that offer the basic services like hosting and a helpdesk, and those that go further. Make an effort to actively engage with the senior management on strategic issues such as data analytics, cybersecurity and modern workplace management. Companies involved in board-level strategy discussions embed themselves in their customers’ business for the long term.

  1. Prioritise your staff

Attracting and retaining staff is a huge challenge in the industry. Demand for IT services has shot up during the pandemic, talented staff are highly sought after, and workers have become more assertive about flexible working opportunities. Take the time to build up a strong corporate culture, keep an eye on anonymous reviews on Glassdoor, and conduct exit interviews with leavers to understand how to improve staff retention. Low employee churn is a key indicator of a business’s long-term growth potential.

  1. Build client relationships that last 

Having an IT managed service provider is a bit like having a current account with a bank. Usually, customers only leave if something goes wrong. Investors will always look for businesses that take pride in going above and beyond, in exceeding their clients’ expectations: that’s how you build strong customer relationships. Listen to your clients and be prepared to tailor specific solutions to their problems. A business has an issue if more than 10% of its customers leave within a year – stripping out exceptional events, I look for an underlying churn rate of around 5%.

  1. Maintain an effective sales team

IT service providers typically base their business model on service agreements, which generate predictable, recurring revenue. This means these companies are usually good at forecasting future cashflow. What’s less common is to have a good understanding of their sales pipeline. A well-organised sales department, with access to accurate data and an effective ability to convert targets into sales, will stand out to investors.

  1. Enhance your appeal with professional services

As mentioned, recurring revenues are the norm in the industry; however, it’s now recognised that one-off projects, addressing issues such as cloud computing – which are ever more complex – are a great way for growth-focused IT businesses to augment their recurring revenue and embed the relationship. If you don’t already, consider offering one-off professional services projects and consulting to your customers to stay competitive.

  1. Ensure you get paid on time

In IT services, customers typically pay in advance, so if a provider isn’t billing and receiving the bulk of its income by the start of each quarter, an investor would want to know why. Managed service providers ought to be able to convert every pound of profit into cash. Make sure that you’re prepared to present an effective pricing model in your funding rounds and that you’ve cultivated a disciplined finance team that keeps your records up to date and aren’t afraid to chase up unpaid invoices.

It also pays off to be aware of the disruptive technologies currently at the forefront of investor attention. Looking ahead, we’re beginning to see certain sectors emerge as particularly exciting areas for investment, for example, companies using AI and machine learning.

Attracting investment requires strategy — it’s all about highlighting what your business is doing to ensure lasting success. A business that presents a strong financial profile, prioritises staff retention and client relations and recognises its own disruptive potential would make a winning investment for me. 

Mark Nunny is an investor in BGF’s Milton Keynes office. Over the course of his career, Mark has invested over £60 million in a range of thriving TMT businesses.