The initial round of fundraising can be extremely stressful for startup business owners. There’s so much to think about and numerous plans to execute, so having an understanding of what investors are looking for can really help to put together a coherent and attractive offering.
By Jeff Barber
Essentially, you need to make your new enterprise stand out from the multitude of other new businesses that are also vying for investors’ attention. So how can you draw investors to your ideas, and convince them that yours is the business investment they’re looking for?
Here are just a few of the areas you should focus on to present yourself and your business in the very best light.
Return on Investment (ROI)
Return on investment is always going to be a key influence for any investment decision. This is why you need to carefully consider how much equity you’re prepared to give away in return for investment in your company, and how flexible you can realistically be.
This in itself is a difficult decision, particularly if investors demand a considerable proportion of equity. They’re likely to have a minimum percentage stake in mind before negotiations begin, and may wish to include within a contract their right to invest further money at various stages of the company’s growth.
When calculating a potential return-on-investment, they could also be looking for someone they can mentor. This might form part of the overall deal so that you gain from their prior business experience, or access the contacts they’ve developed in the industry. This would help your company get off to a great start, and grow exponentially over the long-term.
You and your team
Being the ‘face’ of the company, the way in which you present yourself and articulate your offering has a huge impact on the outcome. If you’re confident, eloquent and persuasive, but also readily accept constructive criticism and advice, you not only convey your thoughts effectively, you also offer investors the chance to shape a young business without clashes of personality.
In the same way, having the support of a team that’s experienced, knowledgeable, and proactive, instils confidence in investors that the business is in safe hands generally. If you’ve already gained traction in your market, for example, this demonstrates dedication and passion from you and your team, and adds credibility to the offering.
How well you’ve gained traction in the market could be evaluated in a number of ways – revenue, for example, is a reliable method, but customer satisfaction can also be relatively easy to measure via social media.
Opportunities within your market
Some investors specialise in certain industries with which they have experience. Others might only deal with businesses in emerging markets, so the company they’ve invested in has more space to grow unhindered by strong competition.
Even if your sector does appear saturated, you may have spotted a gap in the market, or be a ‘disrupter’ of the norm, introducing innovative new ideas or technology into a sector that’s ready for change.
Seasoned investors will spot this type of opportunity, and understand its long-term potential, so if this is your scenario you need to clearly show the issues and challenges you face and how you’ll deal with them practically.
Providing a detailed and coherent business plan that clearly explains your reasons for starting-up, along with accurate facts and figures that support your projections, is crucial when securing investment as a start-up.
An investor will want to see that you’ve carefully considered all the challenges, opportunities and threats within your market, before they’ll contemplate a deal. This includes researching existing competition, and the potential impact of new companies entering the market at the same time as yours.
Investors will also want to see that you recognise what the figures mean, and their implications in a practical sense for your business – also that you understand the consequences of failing to meet your financial projections and forecasts.
Securing funding for your start-up business can seem like an uphill struggle at first, but if you’re mentally prepared for the challenge from the outset, you’ll be surprised at what you can achieve.
A confident, articulate, and business-savvy start-up business owner inspires confidence wherever they go, so this is a good starting point in showing investors that you really mean business.
Jeff Barber; partner at SellingMyBusiness.co.uk. Jeff has more than 35 years’ experience advising on business sales, disposals and acquisitions and has a wealth of knowledge and contacts across the industry.