8 Ways to Prepare for Raising Startup Investment
Investment. It’s a scary word for many entrepreneurs. It could hold the key to business success, but navigating the mysterious world of pitches, funding rounds, VCs, angels, due diligence and equity finance can be daunting.
We work regularly with investors, so we know that often the difference between success and failure can be in the preparation an entrepreneur puts into their approach. We’ve put together a checklist of what investors are looking for so you can put yourself in the strongest possible position to win investment.
1. Hone your pitch
You pitch is your best opportunity to grab an investor’s attention. An investor is staking their cash not just on your idea but also on you, and a sloppy pitch does not give the impression you’ll be able to keep a tight hold on your business.
Have your ‘big idea’ honed to a couple of sentences you can recite off by heart, so that you communicate the value you offer and the money-making opportunity right up front.
Practice pitching beforehand to someone who can quiz you on your figures and plans. Ideally, you should be able to talk without prompts – your company is your baby, and you more than anyone else should be able to talk naturally and enthusiastically about it. But if you’re nervous about freezing on the day, using prompt cards with key points is fine, and certainly preferable to forgetting your figures. Avoid writing out your whole pitch – reading from a script will sound stilted and get in the way of your passion.
The key ideas you want an investor to take away from your pitch are:
- The problem you’re solving
- Why your business idea is different to what’s already on the market
- How your business will make money on a sustainable basis
- How your concept can be protected from copycats
- What you’ve already done to demonstrate success
2. Bring the buzz into the room
Investors are looking for businesses that have buzz – evidence, feedback or figures that demonstrate this concept will make money. Be prepared to demonstrate that buzz in your pitch.
Reliable market research is the first step. If you’ve already started selling, bringing in sales figures, orders and projections is essential. If you’re not yet selling, you can still demonstrate buzz by showing minimum viable product testing, evidence of demand and your product development work to date.
3. Own your figures
It might seem unfair for an investor to make a decision based on whether you can recite last month’s cash flow figures off the top of your head when you’re also giving them these figures on paper. But what an investor is looking for in a pitch is your familiarity with your business. And those figures are the lifeblood of that business. If you struggle to get a handle on them, you’re unlikely to be living and breathing your figures on a daily basis, which is worrying for an investor potentially staking money on your ability to manage money.
If your figures are projections, investors understand that there’s a high level of uncertainty involved. But what they are looking for is evidence of a robust process for arriving at your numbers, showing you understand your market. For more information, check out our guide to the KPI’s you should know here.
4. Know your investor
Knowing your potential investor before you pitch is essential. If you’re pitching to the wrong person, you’re wasting all that time you’ve spent preparing, and you’re probably wasting their time too. Investors often specialise in particular industries where they can add value, so research what similar investments they’ve made in the past and where they might be able to add value with their involvement.
5. Nail your business plan
You might think that if your idea is strong enough, you can just waltz in and wow them with your sales spiel. But serious investors will want to see a robust business plan to back up your idea.Many entrepreneurs are nervous of business plans, but there’s no need to be. A good business plan is just the past story of your business, with an exciting cliff-hanger to describe the current situation and a teaser chapter or two for what happens in next.
The act of putting together a business plan also helps you evaluate your business, putting you in a position of knowledge and strength when it comes to your pitch.
6. Be honest
Experienced investors have seen it all; fudged figures, murky dealings, convoluted company structures; they’re expert at sniffing out the holes in a pitch. All businesses have weaknesses, and it’s better to address them head on than to try and fudge them in the hope they won’t be noticed. An investor wants to know that you can deal with problems when they arise, and you can demonstrate this by talking about them.Remember, even if you did manage to sneak a gaping hole in your figures past an investor having an off day, you’d get found out during the due diligence process and be left looking very unprofessional.
Evidence of sustainable, repeatable income sources, demonstrable growth, a strong market niche, viable route to market and well-planned exit strategy are worth far more to an investor than a wildly high valuation or promises of overnight success.
7. Get ready for cross-examination
Bear in mind that your pitch is likely take up only a small proportion of your initial meeting. The rest of the time is likely to be dedicated to questions, so it’s crucial to be prepared for this too. Be ready to respond to tough questions about risks; your risk profile is a key consideration for an investor, so understanding it yourself, and having strategies in place to minimise risk, is key.
And don’t forget that you can ask questions too. Doing so demonstrates that you’re driven to get the best deal for your business, something an investor will appreciate. You could ask for clarification on the investment structure, their level of involvement, any fees involved and their track record.
8. Do the groundwork for due diligence
Once you’ve got an interested investor, the next step on the path is due diligence, the process of examining your company and the deal on the table for any potential issues.
The more you prepare for due diligence in advance, the stronger your position. Preparation shows you understand your investors’ requirements and that you have a strong grasp of your business.
You should be able to produce at short notice:
- Detailed financial projections
- Evidence, including reliable market research, contracts and orders
- Copies of employment contracts, patents, trademarks, licensing agreements and other legal paperwork which underpins your business
- Details of any funding you already have and copies of investor correspondence
- Details of money going out, including salaries, debts and leases
- A planned exit route
You should have a system to keep this information regularly updated so that you can deliver it quickly when needed. It can be a good idea to appoint one person at your company as the main point of communication so that you can build a strong relationship and make sure all queries are answered.