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As you look to grow your business, chances are you'll need some form of external investment at some point - whether you need money for stock, equipment, people, or a bit of everything. It can be tempting to view investment as purely monetary, but accepting external investment means giving away a stake in your business and taking on a new partner. That's why it's crucial that you consider investment in terms of the relationships it brings to your business.
To get you started, we've put together 12 tips to help you crush it on your quest for investors.
1. It’s a project
There is no such thing as a fast-track to instant success, so don’t take shortcuts when it comes to seeking investors. If you’ve ever received a poorly crafted blanket email from a recruiter, you’ll know that this approach doesn’t work. A targeted, managed approach is key and this will require plenty of preparation and research, but it’s far more likely to pay off.
For this reason, it’s important to approach finding investors as a project in its own right. It can take up a lot of time and almost become a full time job for one person - so make sure you have the resources ready to ensure your precious business doesn't suffer. After all, that's the reason you;re searching for investment in the first place.
2. Know your audience
Rather than casting the net wide, make sure you’ve done your research. There are many types of investors out there and each will have different requirements, so it’s crucial that you spend time evaluating the pros and cons of each in the context of your business, so that you’re able to focus your efforts.
There’s plenty of jargon when it comes to the world of investment, so we’ve put together a summary of some of the most common terms you’ll want to get to grips with:
- Angel investors: Affluent (high net worth) individuals who provide capital for early-stage startups, usually in exchange for ownership equity.
- Networks and syndicates: A group of angels, normally led by one or two that have a better understanding of your industry or business idea.
- Crowdfunding: Increasingly popular, crowdfunding websites enable you to reach thousands of smaller investors in one place.
- Venture capital: VC firms typically invest larger amounts in emerging growth companies in return for equity. Often VCs will look at your existing traction for proof that your business model works.
- Seed funding: For early stage startups, this is a small amount of cash to get going, in exchange for equity. It could come from friends and family, angels or some VCs.
- The 'Series' rounds: For those who've matured beyond the 'seed' stage, the series rounds – progressing from A to C - are for businesses that are ready for further growth.
3. Are you looking for more than just money?
Investment partners vary in how involved they want to be in your business. Some will stay at arm's length and let you get on with it, while others are more involved - mentoring, guiding and helping with contacts and industry experience. Most investors have had a successful business career of their own so many understandably want to have a voice in your business. If you hear the term 'smart money', that's what it means!
On the flip side, an investor isn’t the same as an employee. There’s a different power balance to consider and it can be exceptionally messy to navigate if the relationship between business owner and investor goes sour. For this reason, when finding an investor who wants to be involved in your business, it’s important to consider whether you’re likely to be a good fit personality-wise and to make sure boundaries and expectations are set right from the beginning.
If you've never done it before, seeking investment can be daunting. Talking with fellow founders that have already been through the process can be a great way to ease your nerves and gain some useful insight - and maybe even introductions!
If you’re wondering where to find fellow founders, attending relevant conferences, seminars and networking events can be a great place to start.
There are plenty of startup networking events that run throughout the year, organised by groups such as:
5. Create a pool
Based on your research, now's the time to starting drawing up a list of potential investors.
Investors often like to build a complementary portfolio of businesses so try to find those where there's synergy and think about how your venture fits alongside that. This can give you a useful 'in' when you start connecting - and make it far more likely that investors will be interested in getting involved with your business!
While your wish list is important, it’s a good idea to stay open-minded. Investor appetites change all the time, depending on business and consumer trends. Wih this in mind, you’ll likely want to adjust your list as you get more familiar with the environment, and adapt to any fluctuations.
6. Prepare your pitch
Before you start making contact, have a refined pitch deck ready to go. This document is absolutely critical – everyone will ask for it. Refining it can take days or even weeks, and any investors you speak to will want it straight away.
You also need to be prepared for your deck to reach beyond those people you've actually spoken to. Investment is a network driven world - investors know other investors. So make sure it stands out and makes sense on its own.
If you don't possess the relevant skills yourself, then you may want to consider reaching out to a freelance designer to make sure your pitch deck looks impressive and grabs investors' attention from the word go.
7. Get connecting
A word of warning – investors receive pitches for hundreds of business ideas every week. It can be a slow burn, so perseverance is everything! Many investors provide guidance on their website on how to approach them – read it! And if you can get an introduction from a mutual contact, all the better. Check LinkedIn to see if you know any of the same people.
If you can’t find any guidance for a particular investor, a good first step is to drop them a brief email to pre-qualify your interest. Keep it short, targeted and personal. No blanket emails.
8. Re-evaluate your pitch
Once your pitch meeting is secured, go back to your deck and make sure that you’re tailoring it to the investor you're meeting. Here are a few pointers to bear in mind:
- Tell your story – nobody wants to be bored to death with numbers, not even investors! Make it as engaging as possible through personal details and human interest.
- Why are you different? Investors want to know that you've found a niche in the market. So make sure you answer this key question.
- Show a business, not just an idea – investors want to see a functioning business, so show off details of your customers, cash flow and the team you have around you. This will give them confidence you know what you're doing.
- Have a strategy – Most investors are looking around five years ahead and want to know that you've got your eyes on the horizon too. That includes a potential exit strategy, so be sure you've got a plan in mind.
- Anticipate questions – No doubt you'll face a grilling at the end of your presentation, so try to prepare your answers in advance.
9. Pitch perfectly
You’ve got this. A few pointers for the day:
- Don't ramble on – If you've been given a time limit, stick to it, leaving plenty of time for questions. Your presentation should be tailored for every pitch - don't try to fit a ten-minute presentation into a three-minute time slot!
- Clarity - Be totally clear about what you need, what it's for and the anticipated return for investors.
- Show your passion – You cannot be too enthusiastic in a pitch. So give it some welly!
- Look sharp – Whatever you do, don't rock up in your 'just got out of bed' look. Remember, first impressions count and investing in some new threads could well pay dividends (quite literally!)
10. Was there a spark?
Remember, it’s a two-way relationship. If you get an offer, take time to evaluate whether the fit felt right and try to avoid grabbing any offer of investment straight away.
For example, did they ask the right questions and show that they understand your vision? Do they meet any other criteria you have, such as industry experience, contacts or complementary skills? What do they expect from you in return? Is it achievable and fair? Don;t ignore any red flags and always be prepared to walk away from an offer if you are not comfortable. It’s important to start off an investor relationship on the right foot.
11. Background check
Do your background checks. Lots of this will come before you start contacting potential investors, but there’s only so much you can do at this early stage. Once you have an offer, it’s critical that you fine comb any financial details. While it's not unusual for investors to finance some of their investment with bank finance, make sure it's not more than 50 per cent of the equity. Otherwise, you could end up with a mountain of debt you didn't bargain for!
Last but not least - persistence is key! If your 'perfect' investor says no, don't be disheartened - try to learn from it and get as much feedback as possible. Be resilient - success cannot exist without failure. Good luck, entrepreneur!
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