You’ve put your heart and soul into your firm, and now it’s time to figure out how to attract investors and acquire finance to keep developing.
But how would you do if investors such as venture capitalists, angel investors, and bankers evaluated your company?
What factors will influence their decision to invest or not?
When you know what to expect, selling your idea to investors becomes less daunting and more like, “Let’s see if we’re the right fit.”
The process of obtaining startup finance for your business may make you nervous—not because you don’t know your firm inside and out, but because you’re unsure what will be expected of you when you meet with possible investors.
We’ve worked with a wide range of entrepreneurs from various industries.
Here are 11 measures to assist you attract investors and get funds for your new business:
1. Create a strong business plan.
2. Create a forecast model.
3. Obtain customer references.
4. Address IP.
5. Prepare to Explain Your Cap Table.
6. Explain your financial statements.
7. Justify the Use of Proceeds/Funds
8. Acknowledge the Total Address Market and Go-To-Market Strategy.
9. Present a strong sales pipeline.
10. Perform legal due diligence.
11. Provide management team bios and references.
- Create a strong business plan.
Your business plan is an essential document that show investors that your company is worth their risk. Your strategy should clearly explain your company’s aims and ambitions, as well as highlight your team’s experience in your sector.
Show that you understand your clients (your target market) and provide a detailed overview of the products or services you supply.
Your marketing strategy is an important part of the business plan. It identifies your market size and growth possibilities, as well as the effect of trends and sales potential. Pricing, promotion, and distribution tactics are all relevant in this context. Discuss hurdles to entrance as well, including how you intend to keep competition at a distance.
Finally, make your company strategy accessible for everyone by presenting it in an entertaining manner. This not only makes you stand out, but your audience may even thank you for it.
It is worth noting that investors that are already familiar with your sector and market may be more inclined to invest in your firm due to their knowledge and comfort. Keep in mind that their knowledge may lead to more specific inquiries for you, so be prepared to demonstrate your experience.
- Create a forecast model.
A transparent, replicable business model that is scalable and detailed as possible is required. Show investors that you have not only projected growth, but also planned for it.
Prepare to demonstrate how your business strategy will assist your firm become more lucrative. Emphasize financial and market issues, as they are critical for investors.
A believable forecast model is a tool for investors to analyze how well you know your market and your presumed success concerning your market.
Your model should be reasonable while also demonstrating sufficient income and growth to keep investors interested. Just be prepared to explain how you intend to attain your targets.
Consider presenting conservative and aggressive estimates to demonstrate different assumptions, ranging from more cautious to optimistic.
Remember that forecasting is a continuous process that necessitates regular reassessment.
The more current your projections, the more equipped you will be to make informed strategic decisions for your company.
- Obtain customer references.
Investors like to speak directly with customers who have firsthand experience with your product or service.
A chat with a consumer provides a unique viewpoint on your organization that cannot be obtained through a meeting with you or from reading your firm’s marketing materials or website.
Investors want to know the value your company provides to customers, the process your customers went through when deciding to buy, what their user experience is like, and what sets you apart from competitors. Have customers prepared to do interviews with possible investors when the time comes.
- Address IP (if required)
Intellectual property, or IP, is more crucial than ever for businesses, especially for technology start-ups and industrial firms, where information acts as a long-term and defensible distinction.
There are three categories of intellectual property: patents, trademarks, and copyrights. Investors want to see that you understand what intellectual property your company needs to protect and how to preserve it.
According to the Startup Genome Project, intellectual property has been identified as a vital factor for companies worldwide seeking a competitive advantage in the market.
- Prepare to Explain Your Cap Table
A capitalization table (cap table) shows the stock and debt ownership, as well as the liquidation ranks, of all the investors or lenders that have invested in a corporation. A cap table is helpful to investors because it displays how much the company’s founders may hold.
Investors want to guarantee that their interests are aligned with the founders’, and that there is enough stock left over to attract investors in subsequent rounds. Be aware that “founder dilution” can raise a red flag, as funds handed to founders can come with onerous stipulations.
- Explain Your Financial Statements.
Your company’s financial statements reveal a lot about how you do business. Investors are particularly interested in cash flow, debt liabilities, and equity. Having cash in the bank demonstrates that you are prepared for unexpected challenges and can capitalize on fresh chances.
Good cash flow (and a high cash flow estimate) demonstrates sustainable operations, which reassures investors; they believe you can stay out of the “red.” Alternatively, debt obligations result in cash being depleted through debt payments. Slow months may result in your failure to fulfill wages and other expenses. What about equity? Investors want to buy shares in your company, therefore they will analyze your financial statements to determine its value to shareholders.
- Justify the Use of Proceeds (Funds)
Investors want to know exactly how your company intends to use the funds. Will you use their money for capital expenses? Research and development? Legal and accounting fees? What about the recruitment fees and salaries?
Establishing capital efficiency early in the process can help your company build smart leadership, making it more appealing to investors. Be prepared to explain to investors the milestones you hope to attain and the expected outcomes.
Investors evaluating your company’s prospects for investment will look at your financial performance from every viewpoint. Tell them how you expect to build your firm swiftly while spending as little of their money as possible.
Spending sensibly should be your goal regardless of economic conditions, so establish a track record of responsible money management.
- Acknowledge the Total Address Market and Go-To-Market Strategy.
Total addressable market, or TAM, tells investors about the potential size of your market. What number of customers can be reached?
How long would it take to become the market leader? Understanding market sizing helps you not only steer your organization, but also determine your go-to-market approach.
Understanding your TAM will allow you to make forecasts about your market’s genuine size, how many prospects you can expect, how long your sales pipeline will be fulfilled, and potential income over a given time period.
Investors want to hear how you intend to use your resources to reach and provide value to customers in order to acquire a competitive advantage.
Flexibility is essential—as your market, industry, and business evolve, so should your plan. Keep in mind that investors want organizations that can grow swiftly and manage their expansion. You must be able to communicate your TAM to investors and explain your approach for achieving it.
- Present a Strong Sales Pipeline.
There is no business without sales. Investors must be convinced that customers want to acquire your products or services.
Your product or service must stand out from the competition. When discussing the sales process to investors, your differentiators should be clearly defined.
Perhaps your competitive edge stems from your intellectual property, or perhaps you’re approaching an issue in a novel way. Prepare to demonstrate to investors, using real proof, that your market potential is significant enough to justify an investment.
Provide a track record of previous sales (including the number of prospects at each level of the buying process) and outline how you intend to continue to increase your pipeline in order to grow the business and generate money.
- Perform Legal Due Diligence.
Investors interested in investing in your firm will undoubtedly hire an attorney to do a thorough legal study.
The legal due diligence procedure, while unpleasant, serves as a final check on all legal aspects of your company and team.
Investors not only obtain a better understanding of your firm and its operations before making a purchase, but they also utilize this knowledge to decide the buying price.
It is advisable for their legal team and yours to build a strong rapport so that the procedure runs as smoothly as possible.
- Provide management team bios and references.
Investors are very interested in both you (the CEO) and the management team, from their industry background to their business experience. They must have confidence in you and your team’s ability to drive the company to growth and profitability.
As a “top banana,” your experience is extremely valuable to investors. They want to know that you have a track record of outstanding achievement, knowledge, and leadership in your field or previous initiative.
Exude confidence and passion, and show that you are willing and able to change course if your company’s direction changes.
Other desirable qualities that investors look for in CEOs include the capacity to make decisions with input from your leadership team (there is no place for indecision), good interpersonal and networking abilities, and the ability to develop a firm around key competencies and deliver on them.
Investors take on risk every time they invest. An exit opportunity serves as a “reward” for their risky move. It is consequently necessary to incorporate an exit strategy into your business plan. Tell investors how you intend to repay their money (and then some!). Will you pursue an acquisition? Merge with another company.
Select an exit strategy that is consistent with your business and personal goals. Your time frame may differ, so consider when you might want to implement your exit strategy as well. The goal is for all parties to exit profitably.
After your meeting, please let us know how you did! We’ve spent years assisting entrepreneurs like you in laying the solid financial groundwork that investors look for when deciding which companies to fund.
As exciting as it is, the fundraising process may be daunting. But if you’re prepared, you may go in strong and confident, bringing you one step closer to your goal. Do you need help getting your finances in order? Learn more about our CFO and bookkeeping services, or request a consultation.
Do you have any other questions on how to attract investors to your business? Please contact us using the form provided below.