What is the financial process for an investment company like NOM?

If you want to partner with financiers or investors, you have a number of choices. For example, you can approach a bank or leasing company, partner with an informal investor or start crowdfunding. Another option is the investment company. In this article, we'll show you what the funding process looks like at NOM.

Choosing an investment company

NOM is 1 of the 6 Regional Development Companies. This means that we are an investment company with the goal of stimulating business activity in the Northern Netherlands. So we pay particular attention to employment and stimulating the regional economy.

Unlike banks, for example, an investment company often takes a lot more risk with their investments. A bank often looks at your plans in broad outlines and prefers to base its decisions on past knowledge and experience. This involves both the entrepreneurs in question and the industry in which it operates.Therefore, a baker, for example, will get funding more easily if a bank has financed bakeries before and is therefore well-versed in the baking industry. Therefore, for many entrepreneurs, especially if they are doing innovative things, a bank is not the most suitable cooperation partner. This also applies to start-up companies.

An investment company is willing to take more risk in their investments, but do much more in-depth research to do so. On the other hand, it is less important whether you have machinery, a house or an office as collateral. The success rate for funding high-risk investments, such as start-ups and innovative companies, is therefore much higher with an investment company like NOM.

The process at NOM

Although each investment company operates differently in details, the overall financial process is similar. The process at NOM can be divided into a number of steps.

Step 1: low-key introduction

We enjoy talking with entrepreneurs to see what we can do for each other. That's why you don't have to come to us with a fully developed plan right away. It is fine with us if you have worked out your ideas in 2 A4 sheets and would like to share them with us. We want to know what challenges you face, what you ask of us and how you think we can help.

After such a conversation, we consult in our team to determine whether your question fits with us and whether we want to continue the process with you. Usually a few critical questions arise from this consultation that we would like to see answered in a second conversation.

Step 2: determine principles of funding

Even before we start our research, we will discuss the deal structure with you. This seems very early, but there is an important reason for this. After all, this is a topic on which the process relatively often gets bogged down. We want to avoid having already spent hours researching the possibilities, only to find out that we are not going to come out of it in terms of deal structure. During these negotiations, we talk about the amount of money required, potential co-financiers, the number of shares and the control if participations are involved, among other things.

Are we in agreement? Then we record it in a letter of intent. After that, we go into the investigation. Until then, we'll more or less take your word for it. Now it is time to prove whether what we have always assumed is really true.

Step 3: time for research

The research is the most important and time-consuming step in the funding process at NOM. We like to do the research thoroughly and well, because the results are guiding our investments. Unlike banks, for example, which often require collateral, we do not. That's because we more often get into risky projects with companies that may not yet be able to provide guarantees or collateral. Thanks to our extensive research, we still get a clear picture of the success rate so that we can decide whether or not to invest.

What does that research focus on? Basically on everything that comes up in the business plan. For example, you have thought about who you want in your management team. We examine whether we think this is the right composition, or whether the team still lacks something. We also investigate whether there is demand for your product in the market you have outlined. Usually we do this research ourselves, but if it is very technical, for example, we hire an external consulting firm.

After the study is completed, we will review the deal structure. Things may come out of the study that make it necessary to adjust the principles of funding. A positive or negative opinion also comes out of the study. With a positive opinion, we move to the next step.

Step 4: the investment proposal

We also discuss the results of the survey in our team. We do that to keep each other on our toes and make sure we don't overlook anything. Depending on the size of the investment, we then also present it to our investment committee. These are external people with specific knowledge who can advise on the proposal. They include, for example, someone with a technical background, a market expert and an all-round entrepreneur with a lot of experience. If everyone agrees, we go to the final step. There we record all the agreements.

Step 5: the documentation phase

In this step, we elaborate on everything we have agreed upon. The deal structure comes down on paper, as do the agreements we made about control and our cooperation. This eventually leads to a contract. Once you have signed this contract, we transfer the money. Then we will work together to make your plans a reality. This is where NOM clearly distinguishes itself from banks and other regular financiers.

The end of an era

In the case of a shareholding, we also discuss at the outset how we will part company later. NOM aims for a long-term relationship; we are usually involved in a company for 5 to 7 years. We would like to hear from you what your plans are. Do you want to sell your company to Google within 5 years? Or do you plan to buy back shares from us yourself in a while? That matters for the investments we are willing to make together. Do those have a payback period of, say, 10 years, while you want to sell quickly? Then the question is whether that investment is smart to make.

If your company is sold, then our partnership ends. And parting, if we are co-owners, includes settling accounts. Although extraordinary things always happen when money is involved, we usually agree quickly. We also don't leave you to your own devices and will get out only when the moment lends itself.

Good preparation is half the battle

Now that you know the steps involved in the funding process at NOM, we want to share with you a few more important points of interest.

What we see very often is that entrepreneurs think very much in terms of products. Of course that is important, because your product has to be right and there has to be demand for it. But what often receives too little attention are the issues surrounding it. For example, how are you going to produce that product smartly and who is going to take care of the marketing? As an entrepreneur, you don't have to be able to do everything yourself. But insight into what you are good at and what someone else can do better is indispensable. At NOM we are also happy to help you gather the right people around you.

That your ideas originated somewhere in an attic room or in the pub is nothing to be ashamed of. In fact, in most successful ventures, we see that success was born from what was scribbled on the back of the beer mat. As an investment company, we'll do our best to keep you on track and get what you convinced us to do done.

Know what kind of investor you are looking for

Whatever you do, it is important to find an investor that suits you. NOM is an investment company that invests with other people's money. That means we have a clear process because we have to test, research and be able to explain everything we do. An informal investor, on the other hand, might only have to sleep for 1 night before deciding to go into business with you. And crowdfunding is different again: emotion plays an important role, but because of the relatively low amounts, there is also very little risk.

Investment companies can also differ among themselves. NOM, for example, thinks employment is important, so we will fight for that too. Another investment company may only want to make a lot of money as quickly as possible. Therefore, always look at the profile of a potential investor, and consider whether it suits you. Check with other companies where the investor is involved and ask, for example, about the investment horizon.

At NOM, the most important thing is to establish or continue to grow a business that is economically sound. We do this in a friendly, future-proof and as sustainable way as possible.

In conclusion

Are you thinking about partnering with an investor in exchange for shares? There's a lot involved. Download our white paper to find out what impact an investor will have on your business.

Funding helps to get your business off to a fast start or to grow it further. But getting funding is not necessarily easy; there is a lot involved. For example, what kind of funding do you need? And what about equity?
Check out the funding options available from NOM