Finance is the lifeblood of any industry. Every business, no matter its scale, needs money to run and expand its operations.
Finding funding is a daunting challenge for smaller enterprises, particularly start-ups. This is why the importance of investors cannot be understated. A lot of capital market scrutiny helps startups to zero in on prospective investors.
It takes a unique set of networking skills to not only approach investors but to approach them the correct way. A proper channel will improve your chances of getting them to invest in your business endeavor or idea.
Angel investors, who usually invest in startups in which they see potential, are particularly difficult to convince.
Before you try to form strategies on how to convince your potential investors, you should first study in depth what investors look for while they are looking to put their capital in any enterprise.
This will help you pitch your idea in an effective way so that it fulfills the investor’s requirements as well as yours. In fact, the entire process of fund-raising, whether from VCs, banks or angel investors, takes a lot of time, hard work and an infinite amount of patience.
Do Your Homework
Investors like to deal with well-prepared entrepreneurs who come to meet them. You need to be thoroughly well-versed with not just your own company and product. Along with this, you should also be well-informed about your investors.
You should have studied their past investments and the results thereof. It is good to have an idea of the industries they usually invest in.
You need to see if the investments made by them follow a certain trend and/or have some characteristics in common. This will help you link your product, idea or enterprise with their past investments. This will make them feel that they will be on familiar territory if they invest in your business.
Like you and your company, they want to grow their investments as well, whether in scale or market territory. Therefore, you need to ensure that you couch your proposal in a way that it demonstrates growth prospects for your investors.
Prepare yourself to answer any question. Usually, entrepreneurs running start-ups, are highly enthusiastic and passionate about their product concept, business idea or the particular project for which they need funding.
As a result, they sometimes overload potential investors with too many specifics and unnecessary details, thereby killing the investors’ interest in their endeavor.
Keep in mind that your potential investors may not have the qualifications, experience or knowledge required to understand the intricacies of your company or product.
Nor will they be interested in going through the minutest workings of your company or product at this point. Just a gist or a balanced brief proposal will get them interested.
No matter how awesome you think your idea is, or your company’s products are, investors need tangible proof. They need proof of how well your company is doing in terms of absolute figures and performance metrics.
Performance and Analysis
If your project or product has had an encouraging pilot run, share the results with your potential investors. In contrast, if it has problems, then share the results. For example, your analysis of the issues diagnosed during the course of the test run. And how you intend to resolve these issues so that the actual launch in the market is successful.
Past Present and Future
Show them your company’s past and present financial statements, revenue forecasts, profit projections, potential margin forecasts and performance metrics. Also, show them proof of your competitive advantages such as patents for new unique products or trademarks and copyrights.
A lot of this information can be highly confidential, so take care to securely store and share critical and sensitive corporate data. The basic idea here is to be precise and to the point, while also backing your prep talks with cold, hard facts and figures.
You should not plunge into an enthusiastic but vague talk about how your product will change lives or more.
Criticism and Rejection
Often investors may not see things like the market situation, profit projections or your product’s viability as you intend to present to them. They may even criticize or negate your ideas. They may have concerns regarding issues that might not even have occurred to you, catching you unawares.
In such cases, take complete responsibility and request some time to come back with the answers. Promise to address each of their concerns to their satisfaction. It is important to be calm and listen carefully to criticism in order to convince them later with your answers to each of their points.
Sometimes, despite your best efforts, you will still face rejection. If this happens, learn to take “no’ in stride.
A rejection doesn’t mean your idea or product will fail. It simply means that the particular investor wasn’t the right fit for your project. Simply move on to the next investor and think of the best ways to impress them!
Startups need backing during initial times and hardships. And, this is exactly where investors are essential. Investors are those who can elevate your vision and help you become a success story.
It is imperative for any entrepreneur to prepare and follow a few steps to get the financial backing that his or her startup needs.