Wondering how to attract investors to your business?
It takes more than promising financials and a well-crafted pitch. You must also demonstrate operational credibility to prove that your company is ready to maximize their investment dollars.
While getting your human resources (HR) functions in order generally might not be top of mind when seeking outside investment, it can play a major role in getting you a deal.
Having a well-established HR infrastructure helps show your company is ready to grow.
With that in mind, here are the top three HR hurdles you should be ready to overcome if you want to attract investors.
1. Leadership alignment
When performing their due diligence, one of the first things investors will look at beyond the financials is your leadership team.
As they look inside your organization, they’ll hope to see that you have a leadership team that emulates the corporate vision and has the acumen to execute the strategies they’re buying into as an operating partner.
After conducting executive interviews, investors can quickly uncover misalignment between what that shared vision is supposed to be and what the current leadership team seems ready to support.
For most investors, having a misaligned management team is often too risky.
If there’s a breakdown between the goals of the investment group and the goals of an organization’s C-suite, that can trickle down through the company. Ultimately, this may prevent the business from moving in the direction the investors have deemed to be most profitable.
In this case, investors are usually only willing to proceed if they can replace the current management team with their own proven leaders – people they can trust to act as intermediaries from the equity firm to the investment opportunity.
If you’re pursuing or preparing to seek outside investment:
- Has your entire leadership team been involved in the process?
- Is everyone on board with it?
- What do you need to do to gain internal buy-in?
Involving all your internal stakeholders early on will help demonstrate unity and alignment if things move forward with an investor.
Do you have work to do in this area? Here are a few key questions that can help you determine what’s behind ineffective leadership.
2. Company culture
What kind of company culture do you have? Your answer matters more to potential investors than you may realize.
Company culture is a critical HR aspect to attracting investors because they aren’t just buying into your business or your leadership team. Essentially, they’re also buying into your employees. And it’s these employees who are supposed to execute on your business strategy.
The way your people feel about their leaders and the company’s vision has a significant impact on the future of your organization.
In top-performing companies, employees are engaged and willing to give discretionary effort when needed to help the organization succeed.
Elsewhere, employees often feel disconnected and unappreciated. Or maybe they believe only the people at the top have an opportunity to succeed.
Your business may be an asset that looks good on paper, but if investors realize your people aren’t connected to your vision, they might grow doubts that their investment will produce enough of a return.
It’s never too late to start building a more engaged workforce. Doing so takes time and intentional effort, but there are lots of simple ways to promote a positive company culture like:
- Explaining how your employees’ tasks are important to the company as a whole
- Offering praise when a job is well done
- Showing gratitude for leadership skills in your employees
Beyond that, offering good benefits and competitive pay is a big part of creating a culture where your employees feel valued and committed.
Prospective investors want to know you’re avoiding any foreseeable mistakes that could cause unnecessary risk or have a negative financial impact on your business.
When you take the proactive approach to HR-related compliance, it’s like having a house built on a solid foundation.
For houses that lack a solid foundation, it’s only a matter of time before there are going to be problems to fix – sometimes at a great cost.
For example, suppose a company has several workers that they treat as independent contractors who should really be classified as employees.
This is a red flag because the situation must be corrected to comply with labor laws and to reduce financial and legal risks. Without fixing the problem, the company risks monetary penalties and lawsuits that may come with noncompliance. Ultimately, this affects the investor’s financial modeling.
If you want to be more proactive with your compliance, a good place to start is to study the most common HR compliance mistakes companies make and learn what you can do to avoid them.
Are HR hurdles holding you back?
Now that you know why overcoming these HR hurdles is important to your chances of attracting outside investment, it’s time to self-evaluate:
- Is your leadership team aligned with your growth goals?
- Are your employees ready to support you?
- Are you compliant with all the labor laws affecting your business and proactively avoiding mistakes?
If you need help getting your house in order to attract investors, working with a professional employer organization (PEO) is a great option.
Download our free e-book: HR outsourcing: a step-by-step guide to learn more.