You have a great idea. Maybe you have a great business. You might think, Why wouldn’t everyone want to invest in my company?
But the often untold secret of raising money is that it’s a lot like a interviewing for a job. Investors will ask themselves, Has this person taken money from an investor before and turned it into more money?
If the answer is no, the fundraising process can resemble interviewing for a job for which you have no experience and asking to be hired on the spot.
Securing your company’s first investor is therefore much harder than landing subsequent ones. You’re asking investors to take a leap of faith with you – and usually these individuals are sharp, seasoned businesspeople.
You’ll need a pitch that not only describes the business but that excites and inspires. I just went through the process of finding the first investor for my company, Recruiter.com.
1. Pick the right audience
Figure out the type of investors to approach. When I set out to raise money, I made the mistake of first arranging meetings with individuals at large venture capital firms. The investors were looking to deploy huge amounts of money at a company at a different stage of business than mine was at.
I should have started with angel investors. It’s with that group that I ultimately experienced much more success. The stage of your business and the amount you’re looking to raise will dictate the type of investors to target.
Know your audience. Craft your presentation to appeal to the goals and needs of people you’re approaching. Speak to them in language they’re accustomed to and paint a picture that works for their objectives.
2. Tell a story
Think your business is the next Uber? Be confident and go for it. Show why your company is going to take over the world and describe how you’ll achieve it. Then fight for a valuation of your company that reflects your ambition.
Craft your pitch like you might create a storyboard for a movie. Don’t spend all your time demonstrating your company’s value at the current moment. Investors want to hear about the future. Show how this investment round will take your business to a much higher valuation.
As author of this story, make it a page turner with a tightly crafted plot and an exciting conclusion.
3. Be bold
If you’re starting or expanding your business, you probably wake up every morning excited to take on the day. Communicate that passion to potential investors. What is the big potential of your business? Describe how you’ll shake up the industry and do things differently. What’s your “special sauce.”
Communicate a dynamic action plan for capital deployment. Investors and banks refer to this as the “use of funds.” Don’t use dry language. This should be the most exciting part of your pitch. What awesome goals will an infusion of investment funds help you achieve? How will this capital accelerate your company’s growth and expand its capacity?
4. Keep it simple
You might assume that if you’re making a presentation to savvy individuals, they’ll easily grasp your business model. But if you’ve been working inside a specific industry for a long time, you probably have developed insider vernacular that most people outside the field won’t understand.
Refrain from using any language that only an insider would understand.
The ‘keep it simple, stupid’ or KISS principle certainly applies to raising money. Develop a pitch that a kid in your neighbourhood could understand.
A good business concept solves a basic need that everyone can comprehend. If you don’t have that 30-second, easy-to-understand pitch, you’re probably not ready to raise money.
5. Talk up the sales
Not every start-up is already generating sales. If you’ve been successful at realizing revenue thus far, mention those numbers and frame them in the context of a timeline. You might say, “We had $100,000 in sales and have been in business only six months.”
Be prepared to be challenged on how you can continue to augment sales profitably. Know that the type and quality of that revenue is significant to investors. You want sales that are repeatable and customers who are easy to acquire.
Your company’s valuation is determined in part by the pace at which your company is expected to accelerate its sales. Prepare a well-defined plan for achieving rapid future growth.
6. Keep timelines tight
Setting a time frame for the fundraising process might seem scary. What if you don’t raise any money during the six-month window that you have set? You might fear failure.
But that tight time frame is your friend in many ways. A deadline gives investors a reason to seal the deal. Having one set date to close with multiple investors can simplify the contracts process and reduce legal fees. Investors like to know there are other people involved in making a deal. Your business is further validated by each commitment that you receive.
In your verbal pitch, set a clear timeline for investment and expansion plans.
7. Explain the exit and reward strategy
You may love your business and not want to think about leaving it behind someday. But your investors will not be in that position. They want to envision what the end of their relationship with the company could look like for them.
View your business as investors do. Describe concretely how they’ll get their money back, compounded and multiplied. Clearly show that your goal is their success.
This article was originally posted here on Entrepreneur.com.