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.
6 Great Tips For A Successful Shark Tank Pitch
Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes.
Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes. Entrepreneurs will often need to promote their businesses to prospective customers, lenders, investors, employees and even suppliers.
All stakeholders would like to know with what and whom they are dealing. They will need to assess risk and will try and evaluate the business against others who are competing for those same funds.
1Know Your Product
You should be able to describe your business within 60 seconds, in a confident and positive manner. Let the stakeholder know what particular problem your business solves which makes it viable and attractive.
Your brand and how you intend to develop it is important in determining whether they will invest or lend you money. Share critical information with them such as large customers, patents and trademarks and details of forward orders.
If you are looking for funding or investment, make sure you have the relevant paperwork to back up what you are saying.
You must have your numbers at your fingertips. A true and successful entrepreneur will know his numbers instinctively and be able to recollect and present them convincingly. Stakeholders want to know your turnover (sales) over the last couple of years, your gross profit and net profit.
Investors want to know what they are investing in and whether there is strong potential for their money to grow. Lenders will want to assess their risk — how are you going to repay the money? Moreover, you as the business owner, need to be sure that you will be able to make the required repayments.
You must know what your margin is, as this will largely determine your viability as a business. Margin or gross profit is the difference between the selling price of the goods and their cost and is usually expressed as a percentage.
3Know What You’re Asking For
Be clear as to the size of the investment you want to give away and how that determines the ‘valuation’ of the business. Therefore, if you wish to raise R200 000 for 10% of the business, that means you value the business at R2m — be sure you can back that up or you will get taken apart.
4Have a Business Plan
The best way to fully understand your business is by way of having a detailed business plan, which has been prepared whilst working through every facet of your business, from the original idea to the finished product.
As the business owner, you need to live this business plan and be able to use it as your daily guide to success. Develop it, change it where circumstances require it, but most importantly know it and understand it.
In this way, you will be able to deal with most of their questions, be they about marketing, research, international expansion etc. It is also a good idea to know your competition and what they are up to.
In most interactions, you the entrepreneur, are selling yourself. Whether it is an investor, lender, customer or prospective employee, it is their impression of you and your capabilities which ultimately determine whether they want to work with you.
Be confident, defend your position where required, as you will need to parry some blows but do not behave arrogantly.
6Learn From Your Mistakes
Many entrepreneurs who have presented to the Shark’s Den and not been able to garner investment have turned their business into great successes. You need to be able to learn from the experience, and if rejected, bounce back even stronger.
3 Things You Must Have In Place To Get That Start-up Bank Finance
If you’re planning to secure funding for your start-up, you need to put the right foundations in place.
The South African landscape for raising finance is tough for any business, with stringent lending regulations. Here are three areas to focus on as you set up your start-up to ensure you’ll qualify for a loan or equity funding.
1Securing a Market
Most SMEs I have mentored or advised start with expressing how big the total market size is for their product or service, but, while this is important to understand, the big question is: What percentage of that market will you attract and how?
Look at the ‘how’ first and work your numbers backwards. For example, if you secure a R10 million contract to supply an item that has a market size of R37 billion you are capturing only 0,03% of the market. However, if you’re able to cover your monthly expenses (including your loan repayment) and make a profit, that’s what counts. You should be able to show this contract or letter of intent to procure, which shows how and where you will find this market.
2A Strong Team
When you’re starting out you’re likely to be the sum total of your team. If you’re going down the entrepreneurial journey alone, make sure you have identified who will mentor and guide you through the areas you don’t have competencies in and cost this into the business start-up and running costs.
Focus on who in the business is going to:
- Sell and market: Do they have the necessary skill, network, product and market knowledge?
- Control the money: Are they financially savvy and can they make sure that money is being used for the right things?
- Operate: Who has done this before? Can this individual manufacture the product or arrange the supply of goods or services, ensure quality control and sound human resource management?
Formalising your business is costly but necessary. If you don’t have a formal entity, shareholders agreements, loan agreements, financial statements, management accounts, tax compliance and so on, you will come short when looking to raise finance.
Understand these costs upfront and include them into your start-up budget — this will save you a lot of pain in the long run.
The truth is that finance is available for women who have the right business ingredients just as much (if not more — in the South African context) as it’s available for men and just as with men. And, resources such as these help to unpack and guide the core fundamentals that are needed to make business bankable/fundable.
Then it’s all about implementation and staying on track to translate all that you’ve done and all that you wish to do in a bankable business plan, and approach the relevant funder for your needs. The right business mentor can certainly help you on that journey.
If You’re Trying To Raise Money, Doing Any Of These 9 Things May Scare Off Investors
Avoid these mistakes and funding could be yours.
Most new and existing businesses can benefit from outside funding. With such funding, they can grow faster, launch new initiatives, gain competitive advantage and make better long-term decisions as they can think beyond short-term issues like making payroll.
Unfortunately, though, most entrepreneurs and business owners make several mistakes that prevent them from raising capital. These mistakes are detailed below. Avoid them and funding could be yours.
Making unrealistic market size claims
Sophisticated investors need to understand how big your relevant market size is and if it’s feasible for you to eventually become a dominant market player.
The key here is “relevant” and not just “market.” For example, if you create a medical device to cure foot pain, while your “market” is the trillion-dollar healthcare market, that is way too broad a definition.
Rather, your relevant market can be more narrowly defined as not just the medical devices market but the market for medical devices for foot pain.
In narrowing your scope, you can better determine the actual size of your market.
For instance, you can determine the number of foot pain sufferers each year seeking medical attention and then multiply that by the price they might pay for your device.
Failing to respect your competitors
Oftentimes companies tell investors they have no competitors. This often scares investors as they think if there are no competitors, a market doesn’t really exist.
Almost every business has either direct or indirect competitors. Direct competitors offer the same product or service to the same customers. Indirect competitors offer a similar product to the same customers, or the same product to different customers.
For example, if you planned to open an Italian restaurant in a town that previously did not have one, you could correctly say that you don’t have any direct competitors. However, indirect competitors would include every other restaurant in town, supermarkets and other venues to purchase food.
Likewise, don’t downplay your competitors. Saying that your competitors are universally terrible is rarely true; there’s always something they’re doing right that’s keeping them in business.
Showing unrealistic financial projections
Businesses take time to grow. Even companies like Facebook and Google, with amazing amounts of funding at their disposal, took years to grow to their current sizes.
It takes time to build a team, improve brand awareness and scale your business. So, don’t expect your company to grow revenues exponentially out of the gate. Likewise, you will incur many expenses while growing your business for which you must account.
As such, when building your financial projections, be sure to use reasonable revenue and cost assumptions. If not, you will frighten investors, or worse yet, raise funding and then fail since you run out of cash.
Presenting investors with a novel – or a napkin
While investors will want to meet you before funding your business, they will also require a business plan that explains your business opportunity and why it will be successful.
Your business plan should not be a novel; investors don’t have time to wade through 100 pages to learn the keys to your success. Conversely, you can’t adequately answer investors’ key questions on the back of a napkin.
A 15- to 25-page business plan is the optimum length to convey the required information to investors.
Not understanding your metrics
How much does it cost to acquire a customer? What is your expected lifetime customer value?
While sometimes it’s impossible to understand these metrics when you launch your business, you must determine them as soon as possible.
Without these metrics, you won’t know how much money to raise. For instance, if you hope to gain 1,000 customers this year, but don’t know the cost to acquire a customer, you won’t know how much money you need for sales and marketing.
Likewise, understanding your metrics allows you and your team to work more effectively in setting and achieving growth goals.
Acting like know-it-alls
While investors want you to be an expert in your market, they don’t expect you to be an expert in everything. More so, most businesses must adapt to changing market conditions over time, and entrepreneurs who feel they know everything generally don’t fare well.
A good investor has seen many investments fail and others become great successes. Such experiences have made them great advisors. They’ve encountered all types of situations and understand how to navigate them.
If you’re seeking funding, acknowledge such investors’ experiences. Let them know that while you are an expert in your market, you will seek their ideas and advice in marketing, sales, hiring, product development and/or other areas needed to grow your business.
Focusing too much on products and product features
When raising funding, you need to show you’re building a great company and not just a great product or service. While a great product or service is often the cornerstone to a great company, without skills like sales, marketing, human resources, operations and financial management, you cannot thrive.
Furthermore, if your product has a great feature, be sure to specify how you will create barriers to entry, such as via patent protection, so competitors can’t simply copy it.
Exaggerating too much
When you exaggerate to investors who know you’re exaggerating, you lose credibility.
One key way to exaggerate is with your financial projections as discussed above. There are many other ways to exaggerate. For instance, saying you have the world’s leading authorities on the XYZ market is great, but only if they really are the world’s leading authorities.
Likewise if you say it would take competitors three years to catch up on your technology, when investors ask others in your industry, they better confirm this time period. If not, your credibility and funding will be lost.
What do investors care about? They care about getting a return on their investment. As such, anything you say that supports that will be welcomed.
For instance, talk about your great product that has natural barriers to entry. Discuss your management team that is well-qualified to execute on the opportunity.
Talk about strategic partners that will help you generate leads and sales faster.
But, don’t go off on tangents that don’t specifically relate to how you earn investors returns, like the fact that you’re a great tennis player.
Likewise, conveying too many ideas shows you lack focus. For instance, saying you’re going to launch product one next year, and then quickly launch products two, three and four, will frighten investors. Why? Because they’ll want to see product one be a massive success before you even consider launching something new.
Investors have two scarce resources: Their time and their money. Avoid the above mistakes when you spend time with investors, and hopefully they’ll reward you with their money.
This article was originally posted here on Entrepreneur.com.
- Franchising Sector – The Year That Was
- Pet Wellness Worx Found Business Success In Rehabilitating Pets
- The Secret Sauce To Great Franchise Leadership
- Listening To These 8 Audiobooks On Success Is A Better Use Of Your Long Commute
- 4 Lessons From The Pivotal Group Founders On Growing And Disrupting All At Once
- Sennergi’s David Hounson 4 Tools To Help Weather The (Entrepreneurial) Storms You Will Face
- The Best Conversion Rate Optimisation Tips To Help You Grow Your Business
Start-up Industry Specific2 months ago
How Do I Start A Transport Or Logistics Business?
Business Plan Advice2 months ago
Writing a Business Plan May Not Be Your Idea Of Fun, But It Forces You To Build These 4 Crucial Habits
Company Posts1 week ago
Enhance Your Entrepreneurial Flair With An Online Postgraduate Diploma From The University Of Pretoria
Entrepreneur Profiles2 months ago
10 SA Entrepreneurs Who Built Their Businesses From Nothing