How to Attract Quality Startup Investors
It’s time to tackle the big one.
Money. Finance. Investment. Moolah.
You’re not going to find it growing on trees. If you want to get your product off the ground, you’re probably going to need to attract a quality, serious investor – and that’s some serious stuff.
At least you’re taking your business seriously. Go you!
Firstly, you need to lay some groundwork. Or rather, homework.
That means learning what debt, equity, royalties, bonds and all that complicated sounding stuff is so you can talk confidently to an investor (who is going to know their stuff) without sounding like a total newbie.
To get the skinny on the actual finance, check out this Grasshopper article. It’s a good summary of the kind of technical terms you can expect.
Then onto the rest. Attracting great investors requires a tonne of legwork, and while you can rely on seasoned peers and experts to make sure you make good decisions, you’re going to have to do a lot of the learning and scribbling yourself.
What do you need to attract a great investor?
Work on those referrals. This is going to take longer than an afternoon, so buckle up.
Investors want to talk to smart, driven people, so act the part. Attend conferences and give talks, act as a thought leader in your industry. Demonstrate passion, energy, expertise and a willingness to learn.
No one wants to work with a grouch. If you’re approachable and authoritative, reaching out to an investor (or being approached by one) will be far easier.
Once you’ve secured a face-to-face meeting, you’re going to need to bring a veritable feast of material for them to see. Leave nothing out – it’s better to be over-prepared than underprepared.
What do you need to show an investor you mean business?
A secure, tested business model
This is the big one and without it, you’re doomed.
You need to demonstrate that your economics make sense, that the model you’ve chosen is tested, successful and already has legs.
Will it appeal to actual customers? Is it a model that can later be applied nationally, or even internationally? (It doesn’t have to tick the global box to start with, but thinking big never hurts.)
In a nutshell, your business model needs to be tested, replicable and scaleable.
Speaking of which…
No investor is going to want to pour their figurative dollar into a car boot sale.
Your business needs to promise future profitability and scalability. You also need to prove that you’re ready and willing to change with the times. A big business doesn’t run like a small business.
You don’t have to be an expert – you’re going to learn as you go – but you need to show that you’re not blinkered and, crucially, you’re adaptable.
Conduct a little market research before you head into your meeting with the investor.
They’re going to want to be assured that you’ve got a pool of eager customers who are going to want and need your product as soon as they see it. Are you solving a market problem? Are you too niche or not niche enough? Will you be swimming in a sea of competitors or trying to squeeze profit out of a tiny customer demographic?
What do your rivals have to do with pitching an investor?
Pretty much everything.
It doesn’t matter if their entire business plan is different. If their target demographic is the same as yours, you’re going to have to take them on.
The trick here is to be honest. If you aren’t offering something totally new, you need to show that your solution trumps the previous solution. You need to offer something better, more efficient, more profitable.
The experience you provide can be just important as the product.
MARKETING & BRANDING
Your product might be the bee’s knees, but don’t presume customers will magically beat your door down once it launches. Unless you’ve got a marketing plan, no one is going to know you exist, let alone buy your product.
Have a good PR plan in place and some collateral marketing ideas (that’s sales marketing, by the way.) You can hire professional marketers later.
Now you’ve learned what royalties are, you need to be able to pitch your finances – in exquisite detail – to your potential investor. Where is each and every pound going to be spent? What are you going to make back?
Most importantly, how are you going to use their money?
Try to provide either a cash flow statement, balance sheet or profit and loss account. All three would be best. If you can, also sketch out a monthly or annual forecast.
Don’t forget to let them know when they can expect to see their money back. There are tax incentives they can use over at the HMRC Enterprise Investment Scheme.
You know that bit about learning about equity?
You’ll also want to quiz up on business law. Tax, company structure, HMRC, benefits – the works.
You don’t want to have to send a sheepish email to a new investor informing them they’re about to be liable for something you should’ve sorted earlier.
But before the big meeting…
Get a friend to be as brutal as possible and have a practise run. Having big scary meetings doesn’t come naturally to everyone and you don’t want meeting your potential investor to be your first try.
Be confident. They want to give you money, or at least give you a chance.
Above all, investors are business people too. Treat them like it, do your homework, and look them up on LinkedIn before you meet up. Above all, remember to be human.
If you make them smile and like you, you’re already halfway there.