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What You Need to Know About Approaching Investors

Passion is key to turning your business idea into a reality. However, passion alone isn’t enough to guarantee a business will succeed. You also need funding.

There are many ways to go about funding a business. One of the smartest is to approach an investor. If your business idea is strong enough, you may find parties willing to invest in it for a share of ownership.

This can yield a wide range of benefits. Investors often provide more than just funding. In many instances, they also serve as business mentors, actively helping you achieve your goals.

That said, in order to take advantage of such benefits, you need to know how to find the right investor, how to approach them, and how to avoid common mistakes.

This guide will help you. If you’re trying to find investors for your business, keep the following points in mind:

Understand Your Options

What to Do 

You have various options to consider when seeking investors. You can work with individuals or you can coordinate with venture capital firms. You can ask for investments from friends and family or you can seek funding from people you do not know. Research each option to determine which is best for your needs. For example, while it may be relatively easy to convince friends to invest in your business during the early stages, you could put a strain on a personal relationship if you fail to deliver a strong return on their investment. Weighing the pros and cons of each option before accepting investor’s money is crucial.

It is also important to consider what your goals are before meeting with investors. Remember, funding is not all that some investors have to offer. There are also many of them willing to actively involve themselves in your startup. They can teach you business skills you might be lacking, help you develop marketing strategies, provide network opportunities, assist in the recruitment process, refine your business plan, etc.

That may be the kind of help you need. If so, look for the investor willing to provide it. David Merry, Partner in Kinetic Investments says : “We invest in people. We believe in people. They are what drive a company forward and make it profitable. We do our best to provide our entrepreneurs with the tools they need to succeed.”

That clearly indicates that this investment group doesn’t simply offer capital. They also offer additional guidance and resources to boost your odds of success. That may be the type of investor you prefer to work with.

Mistakes to Avoid

Your goal is to fund your business through multiple streams. One source of funding is not reliable. Thus, it is important to consider what stage of growth you have reached when deciding which funding option to pursue.

For instance, when you are first developing your initial business idea, you cannot be certain whether it will be sustainable. Accepting outside investments at this stage could put you in a difficult situation if your business never even begins to truly grow. Instead, you are better off funding it yourself during this early period.

It is time to seek investors when you have been in business long enough to demonstrate your potential. Investors want to see a strong business plan. They want to see financial records indicating your business is (or will become) profitable. They need to know you thoroughly to understand how to succeed in your chosen industry over the long run.

This brings us to our next point:

Understand How Investors Think

What to Do

Investors take major risks when they decide to provide funding to unproven startups. They need to carefully evaluate a wide range of factors and variables before deciding to invest in any business. If you do not prepare accordingly, you may find it difficult to convince investors that your idea is worth taking a chance on.

This obstacle is easier to overcome when you thoroughly understand how investors think. One of the best ways to do is to essentially “become” an investor yourself.

That does not necessarily mean investing any of your own money in someone else’s startup. It simply means performing the kind of thorough research that investors would perform to improve their own skills and knowledge.

It is a useful idea to find out what blogs, books, and newspapers are popular among startup investors and read them frequently. Learn if there are any free online courses you can take in this subject. Find people who are either investors or have worked closely with them and conduct interviews to determine how they approach major decisions.

What Not to Do

Being arrogant when approaching an investor simply because you have conducted some basic research is not a good tactic. If you act as though you are a genuine expert in their field, you are doomed to make the wrong impression.

You need to learn enough about investing that you can confidently say you have a basic grasp of an investor’s mindset. You should not appear pushy or presumptuous by telling an investor you know what is best for them after doing some basic reading.

Another common mistake startup founders make when seeking investors is to simply not conduct enough research. Many investors prefer to fund startups in specific industries. Do not waste your time (or anyone else’s) by approaching an investor who is not interested in your field.

Do not be too overbearing either. Investors are busy people. Do not demand a phone call as soon as you reach out to an investor. They need time to evaluate your idea before they decide to get back in touch with you.

Put Together a Strong Presentation

What to Do

You need to convince investors to take a chance on you. They will be more inclined to do so if you can clearly illustrate why your business is poised for success.

Once more, that involves gathering financial information, putting together a business plan, generating (realistic) growth projections, and assembling it all in an easy-to-consume format.

A simple way to assemble this information is to create a pitch deck. This is a brief slideshow presentation (typically consisting of 10 to 20 slides) which summarizes your business for an investor. Although the information worth including in a pitch deck may vary on a case-by-case basis, in general, it is important to include the following:

  • Value Proposition: Your pitch deck should explain how your product or service provides value to your target customers. Additionally, you need to explain how your business differs from competitors’ one.

  • Target Market: Who do you plan to serve? What age groups do you expect your customers to belong to? Where do they live? How much money do they earn? Are they more likely to be male or female? Answering these types of questions helps potential investors better understand if there is a market for your services.

  • Business Model: Investors provide funding with the goal of earning a substantial return on their investments. Because of this, pitch decks need to explain how your startup plans to make money. For instance, perhaps your product is a free app. To monetise it, you might include ads, offer premium features for an extra cost, sell user data (with their permission) to third parties, etc.

  • Marketing Strategy: A strong business will not thrive if people do not know it exists. In your pitch deck, be sure to explain your general marketing strategy.

  • Financials: Remember to include data regarding your profits and losses. Concrete financial information helps investors make more informed decisions.

What Not do Do

A pitch deck needs to compress a lot of information into a small presentation. Although this can be difficult, you need to resist the urge to include too much detail. This is an opportunity to explain the broad strokes of your strategy to potential investors. If you include more detail than it is necessary, you might overwhelm them. 

Additionally, do not make the error in focusing too much on your own business idea that you failed to explain how an investor stands to benefit from it. Always remember to explain to them precisely why investing in your business is good for them.

A Point to Remember

Approaching investors is common experience many entrepreneurs share. Knowing the right way to cope with this process (and knowing what mistakes to avoid) is important.

Luckily, if you keep these points in mind, you can develop a lasting relationship with the investor willing to provide more than just funding. They could end up filling many different roles, serving as a mentor and business partner. That’s a goal worth aiming for. These tips will help you achieve it.

 

 

 

 

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Carl Cotton

Carl Cotton

Co-founder and CEO

OmenInvest

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Portland

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