A common challenge for SMEs is funding, particularly for those in a competitive sector. Such businesses will desire investors who will put in their money to help the business grow. However, while investors are sometimes willing to put in their resources into smaller businesses to make them grow, these investors also want to get returns from these businesses they are helping to grow.
For an investment to be beneficial and yield a profit to the investor, certain strategies can help the investor decide how he would want to go about his investment in an SME. An SME needs to understand these strategies, some of which are:-
1. Value Investing
This involves an investor buying stocks and shares from a smaller company selling at a discounted price as against the standard price at that time. This is usually a long-term investment plan and the investor needs to be very patient because he must wait for the stock market to appreciate the value of the stock that he bought. Also, such an investor should be ready to follow a contrary pattern of stock purchase different from the norm (i.e. buying shares when most people are selling and selling his shares when most people are buying).
2.Growth Investing
This is an investment strategy aimed at increasing the investor's capital. Here, the target is young or small companies whose proceeds are expected to increase at an above-average rate compared to similar companies within that same industry sector or the overall market. This investment strategy is very attractive to a lot of investors because purchasing stock in growing companies can yield impressive returns when the companies turn out successful. However, if the company invested in does not become successful or crashes, then the investors risk making losses. So, for an investor to engage in this strategy, he/she must be ready and willing to take a risk and put up with whatever happens to the SME he/she is investing in.
3.Socially Responsible Investing
Socially responsible investment (SRI) is an investment strategy aimed at gaining financial return for the investors and social good to the environment and society at large. Since this strategy involves the society benefitting from it, issues such as consumer protection, diversity, human rights, fair trade and environment are very important guides that socially responsible investors will take into consideration.
In summary, whichever strategy an investor applies when investing in an SME, he/she will endeavour to be thorough and find out everything he/she needs to know. The SME on the other hand, must keep this in focus and understand that these strategies come with some level of risk-taking for both the investor and the SME. This should help the SME to establish the point of engagement with potential investors.
Which investor strategy do you feel would work best for your business? Fill the contact form if you need help with this decision.
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