To Small Van Courier providing deliveries in Ireland.
To Small fashion importer and exporter
Trying to raise money for your business from investors can be a challenging process. You must put on a confident face and convince others that your idea is worth their money. Perhaps you need money to finance the development and production of a brand new product that consumers need. Or, you might need capital to expand your business to a new location. Whatever the need, there are some important lessons to learn about pitching to investors. Getting their attention is sometimes easier than getting them to say “yes” and write the check you need to support your business.
The two most notable groups of potential business investors are venture capitalists and angel investors. While both are looking for opportunities to make investments, each comes to the process differently. Their needs and goals are not necessarily the same. You should understand their interests before pitching your idea.
Typically, venture capitalists are willing to provide more capital than angel investors. However, they want to know when you expect to be profitable. Venture capitalists want details – your business model, market size, break-even point, cash flow plans and where your will find new customers.
More often than not, they want to be involved in strategic decisions that you make. Risk is not something they are willing to take unless you can show that their investment will yield a positive return. If you approach venture capitalists for funding, expect to give regular updates so they know how well your business is managing their investment.
By contrast, most angel investors are content with being a silent partner. You may have more autonomy to develop your new business or expansion after receiving their investment. But make no mistake: angel investors also expect an increase in their wealth from investing in your business. You might not need a five-year plan that shows when they will receive a return on their investment. However, they do expect to be well compensated for waiting patiently.
Do your research before meeting with potential business investors. Find out if they have ever invested in your industry prior to you asking for money. If not, be prepared to provide more detail about your industry to educate them on what you do and why your product or service is needed.
During your vetting process, try to see what additional value they could bring along with their money. Some might have connections or technical knowledge to improve what you are doing.
Additionally, determine what goals they have for investing. Make sure the investors you seek have similar interests and objectives. If you are in a growth mode and want to reinvest profits but the investor expects a return by a certain date, your values are not aligned.
If possible, contact other companies that the investors have financed to inquire about the partnership. This will give you further insight into how the investors react with others and their interests in financing different businesses. An informal meeting before the official presentation may also be helpful to learn about their persona and why they are looking for investments.
Knowing your competition goes beyond a compiled listing of companies within your geographical location. You must show investors that you understand their business model and you can describe the competitive landscape. If another company has tried something similar and failed, explain to your investors why they failed – and how your idea is better.
How can you improve or find a niche in a crowded market? Having a feature that your competition lacks is an incremental benefit. However, it is not always enough to keep customers from switching. Investors are more willing to say ‘yes’ when you present them with a successful idea that will generate large returns.
Ask for financing from investors only when you have a transformational new product or service. What are you planning to introduce to the market that is different from what is already widely available? Your business idea becomes more attractive when you present a new method or cost structure that cannot be copied easily by the competition.
Once you have decided which investors to approach, it is time to schedule meetings and develop a pristine presentation. Remember during the presentation to be upbeat but realistic in your goals and revenue projections. Some investors might be impressed if you have three types of profit and revenue projections: optimistic, middle ground and pessimistic. This demonstrates that you have carefully thought about different scenarios that could affect your business.
It is very important that you have a crisp presentation that sizes up your competition and includes information that the potential investors require. Start by memorizing an elevator pitch that describes your product or service in 90 seconds or less. Being concise is not something you can fake with seasoned investors.
They recognize when you have condensed a complicated description of a new product or service. Not only does this show you are knowledgeable about the business, but it also shows that you have researched and can communicate critical factors about your business’s future. Sometimes, it only takes a few compelling sentences to get potential investors to agree to finance your business venture.
Studies have shown that you can increase your chances of landing capital from investors by following some very basic rules. One rule to follow: it helps to have a product or service already on the market. Nothing speaks more to the proof of having revenue coming in than a business with a track record. Even if investors do not request the information, be prepared to show sales revenue for previous years.
Another rule is never ask for other people’s money unless you have spent some of your own. Investors want to know that you are committed to the business. Showing that you are willing to invest your savings or other financial means proves that you are going to work hard to make the business successful.
A business plan should be standard for starting a new venture or expansion even if you are not seeking outside funding. Why risk making mistakes in real-time when you can research and explore the potential of your idea on paper first? Take the detailed business plan that you wrote for your business and condense it into an executive summary format. Be sure to highlight critical factors related to your request for capital.
One final rule: never be afraid to explore other angles. Perhaps an investor likes your idea but still says no. Ask for the names of other investors who might be interested in saying yes. In some cases, it could take 100 introductions before you schedule enough meetings to close the deal.
You can increase your chances of getting a ‘yes’ from potential business investors when you are prepared and match your needs with their goals. One misstep such as giving vague responses could kill a deal. Being confident and knowledgeable is promising for investors who want to avoid making poor investments.
Time is a premium commodity for you and the investors. It is imperative that you come to the meeting prepared with solid arguments about your product or service. Demonstrate the marketability of your plan and evidence of your commitment through sweat and personal treasure. Acknowledge gaps in your weaknesses, if there are any that may affect the business.
Lay out all possibilities and financial risks without giving the impression that you have something to hide. What investors are looking for is evidence that your new business or expansion has market opportunity with potential for more growth. They want to know that their contribution is going toward something that offers great opportunity.
Staying enthusiastic is the trickiest part, but not difficult when you know your business, the product or service you are offering and have projections that it will make money. Show investors that you are excited, but never force it. Authenticity is much more important because you want to establish an investment relationship that is built on trust.