Startup companies have to bring a fresh perspective to get their business noticed – not only by customers, but by investors most specially. However, potential investors are not convinced by mere ideas alone. It takes more than that for investors to write you a check.
According to Entrepreneur Magazine, a long-time leader in entrepreneurship and business management news and stories, you should master your investor pitch if you want to capture the attention of people and companies who can move your business forward by providing you with funding.
Scot Issen, CEO of the Future Founders Foundation, a Chicago nonprofit that empowers youth through entrepreneurship, suggests the following methods of convincing investors to put their money into your startup business. These methods have recurring themes that industry experts have used, time and again, to best articulate their value proposition to investors.
Expect a Challenging Feedback
Entrepreneurs deliver the most successful pitches when they anticipate questions that investors have for them. Investors will raise questions and potential issues to:
- see how you handle difficult business situations
- test your business knowledge
Gaps or unanswered questions will exist even though you have thought out your pitch well enough. However, if you anticipate the questions, you’ll be prepared to answer them. It’s even better if you have faced business problems and have overcome them. You’ll be able to answer well. It also shows that you are committed to your business idea, even during a difficult time.
Another tip is to do research about your business potential competitors. Differentiate your business from theirs. Investors will possibly ask you about your team, the level of success that you and your team have accomplished together, and how long you have worked together.
Show Your Commitment in Your Business
One of the best ways to show your commitment to your business is by telling investors that you have financially invested in it. They want to see that you’re not just giving a lot of your time for your business, but your cash as well. It’s normal for nearly every startup founder like you to keep a day job while you are working part time on your business. It makes sense financially and personally. More importantly, it shows investors that you are dedicated to the success of your business.
Provide Complete Investment Details
Arrive on the presentation day prepared. Make sure that you have with you all the required documents that investors have requested from you – including information about how will your business use the funds that investors will grant to you. They will conduct an assessment to determine whether your business expenses will be good for your startup or not. Will it lead to exponential sales growth? They will also use the information you’ll provide to evaluate whether it’s the time to invest in your business now, or hold it for later. If you can clarify the urgency and use of the investment, you will be more successful with your request for funding.
Know Your Financial Structure and Return-on-Investment
Effectively communicating your business financial structure is more important, than being able to create one. What would you do with a document when you can’t explain its contents to investors?
Investors want to know that you understand your business finances and that you have a clear business model for it. More importantly, they need to know how else your business will create profit and get more funds, when you’ll start creating money, and how much will their investment earn in the long run.
explain Your Potential Target Market
Investors need to know who will buy your product and how are you planning to reach them. This shows that you have done sufficient research to back up your business and its need for funding. You should be identifying realistic ways on how you will conduct marketing to potential customers. Remember, marketing is one of the most important aspects of starting a business and getting funds for it.
Prove the Credibility and Validity of Your Business
Profits are one of the best sources of funding and capital. Sales projections are important, too. However, it is only an indicator of what can happen or a prediction of how much you can earn. Sales on the other hand, show whether there is an increased demand for your product or service or there’s none.
Sales validate your business and prove that it is credible with customers. It shows that customers are willing to buy what you are selling. At the same time, if you have a notable client, even only one, who is willing to pay for a pilot product, other customers will follow suit. This helps investors to recognize that there is a market demand for your business product or service.
Build Investor Relations
This is one of the key aspects of sourcing funds that most startups forget. In order to successfully request funds for your business, you have to build a relationship with your potential investors first. One of the advantages of establishing relationships with investors early-on is it minimizes desperate acts to get funding. If you know your investors well, you can negotiate better terms.
Do your homework to get to know potential investors. They have different preferences in terms of risk threshold, industry, and business stage. They also may have passions or experience in specific areas in which they only want to invest in.
Get investors to believe in your company’s mission and vision first. Over time, you can show them your progress. Remember, the best investor relationships grow organically. Investors anyway, are your partners. They should open their networks to you and not just offer their money.
It all begins with your pitch. Creating a compelling one is the means for a successful partnership with an investor who can move your business forward. The investment cycle can take time, so make the time and effort to nourish your relationships with your investors.