Attracting Investment or Follow-On Funding: What Business Leaders Need to Know
Attracting Investment or Follow-On Funding: What Business Leaders Need to Know
For business leaders seeking investment or additional funding, whether from private equity (PE), a specialist lender, or a bank, the process can feel like a mix of opportunity and scrutiny. While securing funding can unlock growth, working with funders means increased expectations, a higher level of oversight, and often, a different way of operating.
As a CEO of several businesses, I’ve personally been on the other side of investment—whether it was floating a company on AIM and pitching to potential investors, or trying to secure follow-on funding and bank finance for a distressed business. It is an emotional experience. There’s the excitement of potential growth, but also the stress of scrutiny and the pressure to prove your case. Whether you’re raising capital to expand or to keep the business afloat, knowing how funders think, what they expect, and how to control the process is key.
Unlike some advisors who approach this purely from a financial perspective, I’m an operator, not an accountant. That doesn’t mean I’m any slouch on the numbers—I know my way around a P&L, a balance sheet, and working capital as well as anyone. But it does mean that I instinctively understand operations, execution, and the realities of running a business. I appreciate your perspective as a leader, but—let’s be honest—it also means I can smell nonsense a mile off. I know where to look, what questions to ask, and when something doesn’t quite stack up.
This mix of practical operational experience and financial understanding is what gives weight to your case when dealing with funders. It allows you to control the process, steer the conversation toward what really matters, and ensure you’re positioned for success—whether you’re seeking growth capital, a turnaround injection, or simply keeping the doors open.
Many business owners and CEOs assume that if the financials look solid, funding is just a formality. But funders don’t just look at the numbers—they look at execution risk. They want to know:
- Can the business deliver on its plan?
- Is management aligned, capable, and proactive?
- Where are the potential operational risks that could derail future performance?
The Reality of Funders’ Scrutiny
“Over the years, I’ve seen a huge range of reactions when funders start asking deeper operational questions. Some leaders take it in their stride, using it as a chance to showcase their business. Others panic, feeling like they’re under attack. I’ve had everything from a CEO sitting in on every meeting to monitor what his direct reports say, to outright deception of the facts in an attempt to present a rosier picture than reality. The truth is, the best approach is simple: be honest, be prepared, and stay in control of the narrative.”
Why Funders Conduct Operational Reviews and What It Means for You
Investors and lenders don’t just assess businesses based on historical financials; they want confidence in the future. That’s where operational reviews come in. These reviews go beyond financial due diligence to assess execution capability—whether the business is truly set up to deliver sustainable performance.
Why do funders require operational reviews?
- For New Investments – To validate that the business can execute its growth plans.
- For Follow-On Funding – To ensure previous capital has been used effectively and that additional funding won’t be absorbed by inefficiencies.
- For Underperforming Businesses – To diagnose whether financial struggles stem from operational weaknesses and whether leadership is equipped to fix them.
Funders Are Obligated to Ask Questions—It’s Not Personal
“One thing that many business leaders don’t realise is that funders aren’t looking for reasons to say no. They don’t want to catch you out. In fact, most portfolio managers are relationship-driven people—they build careers on trust and connections. But they also have internal obligations. Sometimes, it’s actually awkward for them to tell a CEO they need an independent review. If you already have a good relationship, they might even feel embarrassed about raising the issue. That’s why the best approach is to make it easy for them. Proactively addressing concerns and offering transparency can turn them from neutral assessors into advocates for your business.”
How Should Business Leaders React to Funders’ Scrutiny?
It’s easy to see due diligence, operational reviews, and financial audits as adversarial—like funders are looking for reasons to say no. But the reality is different. A well-prepared leader can use the process to their advantage by demonstrating control, foresight, and operational excellence.
1. Be Open, Not Defensive
If a funder wants an operational review, it’s not necessarily a sign of distrust—it’s standard practice. Avoid reacting defensively or resisting scrutiny. Instead, show that you understand their concerns and are ready to provide transparency.
2. Think Like an Investor or Lender
Put yourself in the funder’s shoes. They want predictability, risk management, and execution certainty.
Key areas funders focus on:
- Consistency in financial and operational reporting – Can you clearly show trends, performance metrics, and forecasts?
- Scalability of the business – Can the company handle growth without breaking its current systems?
- Execution capability – Are you demonstrating that your team can follow through on plans?
The Pros and Cons of a Financial-Only Review
Some businesses opt for a financial-only review conducted by an accountant. This approach has pros and cons, depending on the situation.
Pros of a Financial-Only Review
✔ Ticks the Compliance Box – If the funder only requires a financial review, this approach is efficient.
✔ Provides Financial Accuracy – Ensures numbers are correct and compliant.
✔ Familiar Process for Management – Similar to a year-end audit, minimising disruption.
✔ Suitable for Well-Performing Businesses – If your financials are solid, this may be sufficient.
Cons of a Financial-Only Review
❌ A Narrow, Numbers-Only View – Financials don’t assess execution capability, risks, or efficiency.
❌ Primarily a Desktop Exercise – Relies on existing reports, not deeper operational insights.
❌ Funders Likely Already Have the Numbers – If they’ve already stress-tested your financials, this review adds little value.
❌ Not Enough if Funding is ‘Touch and Go’ – If you’re struggling, you need a deeper operational case.
Final Thoughts: Controlling the Investment Narrative
Whether you’re raising funds for growth, follow-on capital, or financial survival, the right approach can make or break the process.
✅ Treat operational reviews and due diligence as an opportunity – A chance to showcase your business strengths, not something to fear.
✅ Think like a funder – Address risks before they raise them and show that you can execute on your plans.
✅ Prepare in advance – Get your team aligned, have your financials ready, and be clear on your investment case.
✅ Stay professional and proactive – Funders invest in people as much as they do in businesses. Demonstrating leadership and confidence will go a long way.
Considering an Investment or Facing an Operational Review?
If you’re preparing to attract investment or follow-on funding, understanding what funders look for can help you control the narrative and secure funding faster. If you’d like to discuss how to prepare for an operational review or how to position your business effectively, get in touch today.
