Raising money from investors is a major milestone for any startup. But even getting the chance to talk to an investor is still a huge opportunity, and needs to be taken seriously by any founder lucky enough to set up a conversation. Luckily, this guest post by business development and marketing specialist Eric Gordon outlines what you should do once you've scheduled a meeting with an investor to make a great first impression.
There are many factors that come into play in order to guide your business venture to success over the years. For example, your own efforts at planning, your well-developed and thoughtful products and services, and even the drive and motivation of you and your team members will all play a role in the overall profitability of your venture.
However, perhaps the most critical aspect of all is funding. You simply must have adequate funding available for product development, infrastructure, marketing and much more.
Many business owners will seek funding from investors, but convincing an investor to give up their hard-earned money is challenging. Proper preparation for investor meetings can help you to feel more confident and increase your chance of reaching a successful outcome.
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1. Research the Investor
Some entrepreneurs will reach out to any potential investor they can find. While the adage of leaving no stone unturned can work in your favor in some areas, it actually may waste your valuable time when searching for funding.
The reality is that most angel investors or venture capitalists specialize in certain types of ventures or businesses. They may be interested in specific sectors, companies that are in a specific stage of development, those that produce a specific return and more.
Avoid spinning your wheels unnecessarily by chasing after investors that likely will not be interested in your request. A smart idea is to thoroughly research the investors using public information, such as on their website, through social media platforms, in news articles and more. Pay attention to their current portfolio, and develop an understanding of their backgrounds, investment preferences, successes, failures, interests and more.
It is also helpful to reach out to other entrepreneurs who may have attempted to obtain capital from them in the past. The more information you can learn about them, the better your chances of success.
Keep in mind that some investors also bring experience, influence, market awareness and more to the table, and this “smart money” investment can pay off richly for your company over the years.
2. Write Your Executive Summary and Business Plan
Potential investors want to review your executive summary and business plan to gauge their interest in even holding a meeting with you. This means that your written plan needs to sell the company to the investor in a way that speaks their language.
An executive summary will highlight the relevant facts about the company, your products and services, and your target market. Remember to refine your summary based on the specific investor you are trying to target. You absolutely must demonstrate that you have a firm understanding of your market’s size and demographics, and your customer profile. You also must explain your value proposition to this target audience and demonstrate how you are a better option than the competitors.
Your business plan should identify key milestones that you want to achieve with the help of investor capital over the next 18 months. While you need to write this information clearly and concisely, you also need to be able to discuss it during an investor presentation in a more in-depth manner.
While you want to present your potential return on investment in a positive manner, it should also be realistic. Your potential investor wants to hear about your well-formulated growth strategy rather than just a list of projected numbers. Inexperienced entrepreneurs tend to be overly optimistic. Not meeting your milestones and objectives can be detrimental to your ability to generate future investments. Always back your expectations up with real data.
3. Prepare and Practice Your Presentation and Pitch
An elevator pitch is a well-rehearsed summary of what makes your company an amazing investment opportunity for the investor. This is more detailed and more sales-oriented than the business plan.
Consider using images and chart on a slide show presentation to bring your pitch to life in an exciting, engaging way. In your elevator pitch, delve into the history of the business as well as how it will make the investor money.
The total presentation length should be less than 30 minutes long, and you should plan to spend approximately two to three minutes on each slide. Your presentation should not simply be a summary of what is on the slides. Instead, the slides should be used to support your verbal presentation.
Some investors may interrupt you frequently to ask questions; do not let this rattle you. You should know your material well enough that you can speak confidently about it without reciting a memorized speech verbatim.
Try to keep the meeting structured and professional. Your investors are judging this aspect of the meeting as well as the business opportunity in general.
4. Estimate How Much Money You Will Need and What For
As you might imagine, your potential investors want to know exactly how much money you are trying to raise and what you plan to do with the money. The ideal amount of money to ask for is a sum that will fund your plans for the next 18 months.
Avoid asking for less money than is needed simply because you think investors will then less likely refuse your request. Clearly demonstrate how the funds will be used, such as to hire more talent, to expand your warehouse space, and more.
More than that, explain what you think a reasonable split is of equity for their investment and how you arrived at that figure. While the split should be fair, do not give away too much of your equity. When your own income potential is limited, you may lose motivation and drive. You should always know what your bottom line figure is before walking into a meeting so that you can make decisions on the fly.
5. Know Your Passion, Energize Your Story
Investors may view dozens of presentations per week in some cases, so you need to ensure that your passion for your venture stands out. Make your presentation noteworthy during the first few minutes so that you grab their interest.
For example, telling a compelling story as an opener is a great idea. Remember that the investor is investing in you and your team as much as they are investing in the company. Therefore, build credibility, and explain your education, background and overall interest in what you are presenting.
They should be able to clearly understand why you feel so passionately about your products or services. Your investment request should make sense from a numerical standpoint, but you also need to develop a relationship with these investors from the start. Focus on selling yourself as well as the opportunity to your investors.
6. Have a Q&A Session With a Hostile Audience
After your sales pitch that lasts approximately 30 minutes, you will next have to go through a rapid-fire series of questions from the investors. Investors will try to catch you off guard to ensure that you know your stuff.
Therefore, anticipate their questions, remain poised at all times and thoroughly prepare for this aspect of the meeting. Everything from your business plan to your credentials will be scrutinized by investors. Consider some of the toughest questions that an investor may ask you, and prepare to answer these ahead of time.
Some investors may make suggestions, and you should not shy away from these. Instead, accept the advice with open arms, and show the investors that you are receptive to using the knowledge they bring to the table to improve your venture.
Your first few investor presentations may not go precisely as planned, but remember that they are each learning experiences that can help you to grow. After each meeting, take notes about your experiences, and brainstorm things that you can improve on to prepare for your next meeting. It may take you several attempts, but your knowledge and confidence level will increase with each meeting.
Do you want to build a startup that impresses investors? The Founder Institute is looking for entrepreneurs just like you. Apply to a program in your city today!
About the Author
Eric Gordon is an independent business development and marketing specialist for SMEs. He loves sharing his insights and experience to assist business owners in growing their revenues. You can find Eric on Twitter at @ericdavidgordon
For more information on pitching investors, consult "What Investors Are Looking for in Your Startup", "How to Craft a Billion Dollar Pitch Deck", "Creating a Startup Pitch Deck? Start with this Easy-to-Use Template", and "The One Minute Startup Pitch Template"