‘Investors are pinched between two kinds of fear: fear of investing in startups that fizzle and fear of missing out on startups that take off’ (Paul Graham, Co-Founder of Y Combinator).
Lots of startups do not know what funding options are open to them. Money doesn’t grow on trees, and even if it did one money tree may be perfect for one startup, but not suitable for another. Aspiring entrepreneurs should always do their due diligence and explore all their financing opportunities before they start even hunting for investors to ‘show them the money’.
No matter how great your business idea and model are, without investment, it is just a pipe dream. If you don’t come from a wealthy background, have no savings, or can’t rely on relatives or friends to help fund your business, all is not lost. Although you could go to a bank and ask for a loan, or approach the government and apply for an EIS/SEIS, one of the best ways to gain access to significant funds to propel your business forward is to seek investment.
What exactly does investment give your startup?
Overall, investors back business to get a financial return. On the other hand, founders and employees work together with the objective of creating something valuable and lasting for their customers. Investment helps the business achieve this vision. Whether the founder has been dreaming of an aggressive marketing plan, increased digital activity, growing the team, or achieving a business goal that has been impossible because of lack of capital – investment helps make your vision are reality.
What can I do to increase my chances of getting investment?
Investment is accessible for those founders who are dedicated enough to put the work in. Getting investment is by no means as easy as pie, but there are some tips Linkilaw can pass on to you to attract as much investment as your startup needs.
- Put Your Money Where Your Mouth Is:
Investors will not believe in your idea if you are not willing to invest in yourself. You need to put your own money behind it, so do your due diligence and see how you can finance your startup first. Usually startup founders approach banks or speak to their family and friends.
- Have A Business Plan:
Would you invest in a startup that didn’t know where it was going and how it was going to get there? If you don’t have a business plan, you’ll need one if you want to attract startup investment. Business plans take many forms, however they should be well thought out based on research and key information, include a basic concept, market and ideal customer, along with competitors before setting forth a growth strategy.
- Get Your Pitch Perfect:
At some point in your journey to secure investment, you will need to deliver some kind of pitch. Although this could be a more laid-back, relaxed occasion, some investors will expect a formal presentation that’s clear, concise, and tells them everything they’d need to know. Get your PowerPoint presentation ready! You’ve heard about practice making perfect? Get practising to get your perfect pitch.
- Get Noticed:
If your potential investors already know about you, it will certainly increase the likelihood of them investing – it may even lead them making the first move. The more your startup gets mentions in articles or in the public eye, investors will start approaching you!
- Get Networking
Get your business cards ready and hand them out at every business networking event or industry specific seminar you attend. However this isn’t to suggest that the first or second person you meet will be an investor who will hand over their cash. But you could meet fellow founders who used to be in your boat and can impart some useful advice to you.
- Be Receptive
Securing investment isn’t just about money; there’s much more to it than that. You’re also gaining advisors who will be able to offer invaluable advice and guidance; so you need to be willing to take their pearls of wisdom on-board. Be open to ideas, suggestions, and even criticism and try your best not to be stubborn or a know-it-all.
- First Impressions
You only get one chance to make a first impression, so make it count. “We’re often disappointed at how poorly prepared many companies are when we meet them, with poor presentations and confusing messages“, says Jo Oliver of Octopus Ventures. Many investors will decide not to proceed within the first 30 seconds of any discussion, or within a minute or two of picking up your business plan. Understand who you’re talking to and review your target investor’s criteria carefully to ensure a good fit.
- Vision and Strategy
Investors have to be able to buy in to your overall vision, so you need to communicate that vision in an articulate and appealing way. You need to demonstrate your competitive advantage in your chosen area and explain why your particular approach will succeed. Karima Serageldin of Ariadne Capital underlines the need for companies to research the competition: “Are you solving a real problem? What is your unique advantage?”
- Business Plan
A well thought out and comprehensive business plan is essential to any investment proposition. Include detailed and plausible information on where you see the business in three-to-five years, along with critical success factors. Make life as easy as possible for your prospective investors. Think through every conceivable area of interest that an investor might have when looking at your business, and have all the answers covered when you go into bat. Your business plan “should show ambition, but growth levels must be achievable, with allowance made for sufficient resource to invest in the business”, cautions Shani Zindel at Isis Equity Partners.
- Management Team
Your pitch should clearly demonstrate the capabilities and competencies of your team, giving assurance to your investor that they have the skills and experience to manage the business and maximise its potential.
- Trust and Transparency
Investors don’t like surprises – they demand honesty and transparency. The quickest way to lose a potential investor is to sacrifice trust by embellishing the truth. Integrity is the name of the game and no business is ever entirely problem-free. So don’t bury bad news or focus only on the positives – just tell it like it is. “Keep your presentation simple, be yourself, and listen“, says Harry Briggs of Balderton Capital.
Take the time to understand your numbers and the drivers affecting your cashflow and profitability. Get familiar with commonly used financial language and its meaning. “If a business has a realistic and pragmatic view of its order book and its strategy is effectively aligned with its customers’ needs, it’s more likely to appeal to a private equity backer.” says Dan Adler of Lyceum Capital. Be aware of key threats and sensitivities. Don’t overlook even marginal competitors, and always ensure you have considered the threats posed by companies that will lose out if you are successful.
“Maintain a simple capital and IP (Intellectual Property) ownership structure. Stay lean but ensure you capitalise the business sufficiently to get to your next milestone. Be realistic with valuations“, advises Karima Serageldin. Whether this is based on hope value, assets or earnings, don’t be tempted to overvalue your ideas or achievements.
- Funding Requirement
Your business plan should include a separate section setting out the amount you are seeking and the purpose for which it is sought. In this way, your investor will be able to identify precisely what it is that he is funding and will be able to weigh up the likely consequences of his investment.
It’s very easy for an investor to put money into your business, but how will he get it back? A vague idea that you would like to buy his shares back at some future date is unlikely to be attractive. Taking in external equity means that you often need to ‘begin at the end‘ in terms of thinking about exit, having a clear strategy and plan.