It’s very common to hear entrepreneurs looking to receive venture capital or other equity investment in their businesses complain that they didn’t realise the process would take so long, be so involved or that they - and their business - would be under such a degree of scrutiny. Surely, if the basic terms of investment have been agreed it can’t be that difficult to tie everything up very quickly?

In a lot of cases this frustration arises from a combination of lack of understanding and an absence of initial preparation.

Venture capitalists and other funders will have their own processes for diligence, documentation, etc., and in the vast majority of cases they cannot and will not take shortcuts. They are risking their and their own investors’ money so why should they? Therefore it’s very important at the outset to listen to your likely investors and understand what their processes and timescales will be. Don’t try to argue that your business is so good or so unique that they can and should take shortcuts. They will have heard it all before.

Equally important is preparing for a level of scrutiny for both the entrepreneur and their business that they will probably never before have been accustomed to. Such scrutiny is normal and, indeed, beneficial. Not only does it enable your investors to understand your business and your plans for it, it also enables them, with a level of commercial and financial experience and expertise which the entrepreneur is unlikely (yet) to have, to spot problems and issues and suggest ways of dealing with them. Accept constructive criticism and engage constructively with it!

Being prepared for investment means that you should be ready to share with your prospective investors and their advisors in an up to date and user friendly fashion all the key elements of your business, whether financial, technical, operational or legal. That includes:-

• Ensuring key contracts are in place with suppliers, customers, etc. and collating copies;

• Having appropriate employment contracts in place with key personnel (covering off issues such as protecting your IPR and restrictive covenants to protect your business if they leave);

• Providing up-to-date accounts (statutory or management);

• Getting your business plan in a form ready including in a form that is compatible with the preferred format of your investor.

You should also be ready to address any gaps in your business and prepare for the “skeletons” in your closet. Most experienced investors will understand that no business is without its issues or problems. While there is, of course, a suitable balance to be struck which doesn’t over-emphasise a problem, you should assume that an investor will find out about your problems in any event. You will almost certainly be asked to give warranties and make disclosures which would flush the details out in the formal investment documentation process anyway. Engaging at an early stage with your investor and on a basis which offers solutions, or at least a willingness to listen to what others are saying about solutions, is important. Bear in mind that you are unlikely to get off to a good start with any investor who has to find out by their own efforts or by accident about any potentially major issues or problems with your business.

Key to all of this is engagement with your own advisors at an early stage. Your accountant will ensure that your accounts, tax and financial records are in investor ready form. Your lawyer will anticipate the due diligence questions you’re likely to be asked and assist you in addressing major gaps – contractual, regulatory, compliance, IPR and so on.

Don’t be frustrated by the process. Once you know what’s involved and have a better understanding of your investor’s requirements you will probably see that it helps your business.

Colin Millar is a Partner at Wright, Johnston & Mackenzie LLP.