Congratulations! You’ve decided it’s time to secure funding and/or investment for your business and making this decision is no small feat. Now this business decision has been, the next step is to define the type of investors that are right for your business and situation.
Whether that’s personal investors (usually a close acquaintance), angel investors (someone who helps a very new small business), venture capitalists (someone who offers funding based on your business’ long-term potential) or peer-to-peer lenders (loans direct from an individual, without any middlemen), the type of investor will dictate the kind of approach you take.
Receiving investment is more likely if you present your case in a compelling, watertight way. Remember, for a lot of investors, their primary responsibility is to maximise return and minimise risk. You’ll be expected to include information on aspects like your business model, key financial figures, talent, expected terms and spending plans. Specialist expertise, in the shape of lawyers and accountants, is going to be needed (and you’ll want to bake the cost of them into the amount of capital that you’re seeking).
The more targeted your approach, the more likely it is that investment will be sought. A targeted approach to fundraising means you’ll be raising from the right kind of investors – those whose values align with yours and who will offer you terms that work for your long-term goals.
Asking for investment is also a fairly sensitive subject as, at first, you the business owner is asking for a favour as you cannot guarantee the investor a specific date as to when they’ll receive their money back and more (think how tense Dragon’s Den can get!).
A poorly planned, premature ask can permanently harm relationships; you should approach investors only once you have complete confidence in your business. Research on the pre-seed round by file-sharing solution DocSend shows that venture capitalists are spending more time than before on information related to monetization and business viability. This process is about investing time to de-risk your business – and making sure it’s set up to benefit from whatever investors can offer you.
Investment truly takes time. A general rule of thumb is that you’ll need to start approaching people at least six to nine months before you expect to see any cash. But, if you begin having conversations with investors before everything is polished, you can often work with interested parties towards readiness. Investment rounds can take a while to close, especially if you’re casting a wide net to ensure that you’re getting a good feel for what the investment communities’ general terms are and what appetite is like for your business model.
Additionally, ensure to position your strengths and weaknesses in the clearest and most beneficial way possible. You need enough time to position your strengths in the best way possible and to tackle your weaknesses. I know that for myself as an independent music artist, I have strong songs, a strong team of musicians and producers and well-connected, professional visuals team. However, being a young graduate, I lack the financial support for targeted advertising and content creation. Remember, investors invest in people (eg, the founding team) – you may not always have the right answers, but understanding your business and industry is key.
Finally, remember that if your pitch ‘fails’ there’s always a silver lining. Being declined investment by what seemed like the perfect investor can feel like a real sting. However, everything happens for a reason and they probably weren’t the right investor for your business (cliché but oftentimes true). But remember the silver linings! A good angel investor or venture capitalist will either be able to refer you to someone else within their network or keep their door open in case their position changes down the line. Never be afraid to ask why you were turned down, ask for referrals and use the feedback to tighten up your investment case.
To conclude, here are some key points to include in your presentation to make for a compelling and convincing case;
- Prove that there’s a market: who would want your product
- Demonstrate a clear, concise and convincing narrative: what’s the story behind the product? Think about the problem you’re solving and what gives your product an advantage, if you’re looking for growth capital. You need to be able to articulate this in a succinct and captivating way. Your business plan should provide the blueprint.
- Show accurate financial records and how you expect them to change post investment; If you have been trading, you need to get everything related to that in one place – AKA a data room.
- Introduce the team; who is doing what and if you’re lacking roles be transparent about when and how they’ll be filled.
- Where does the money come in; show your working: that might include a financial plan, with sales and spending projections for the year ahead and the impact the capital will have.
- Show where the shareholders fit in. Don’t forget to think about the other perk of investment: expert involvement and advice. Clarify what you’d like to achieve with the help of an investor. Then, think about terms, protections and options for your shareholders.
Illustration by Josephine Rais