More people are quitting their jobs and starting their own profit for purpose businesses. But competition for startup investment is tough! So we’ve narrowed down ten steps you can take to get a head start on your competitors.
1. Be Committed and Confident
Investors like to know that the person asking for funding is 100% committed to the business. To demonstrate this you may need to share some of your story, whether that is how you’ve built an extensive network by attending every networking event available, or how you’ve quit your high paying job to pursue your big idea. Showing that you are serious about your business and dedicated to working hard. This will build confidence with your potential investor as you respond to queries or requests immediately. Demonstrable high levels of commitment will impress investors. Similarly, strong confidence in your own abilities to succeed will help create a vision of success. People want to invest in people who back themselves!
2. Communicate what’s important
Ensure you have a solid business plan that will help you to give potential investors a clear cut idea of what to expect. Build an investor snapshot for your business. This should outline your returns and deficits, competition, and what exactly you intend to do with your business. It will also clearly show where your revenue comes from, who your customers are, and who’s on your team. See this blog post on Building a Stellar Pitch Deck for a comprehensive outline of the information you need to provide to potential investors.
3. Test your MVP (minimum viable product)
Find a small group of users who are passionate about the problem you are providing a solution for. Their passion is key— as they will tolerate hitches and bugs and give you meaningful feedback. Once you’ve solved for those initial issues, do a second wave of user testing. Make improvements based on the feedback you receive. When If you are able to prove that your product stands up to the critique of real customers you’ll be in good stead with potential investors.
Most investors would rather invest in a market tested (less risk-driven) venture indicating that it’s heading in the right direction, than the next ‘tinder meets hootsuite’ that has never seen the light of day. It’s going to be for investors to SEE and UNDERSTAND your business: if your product is further along; if it has more time in market; if it has runs on the board; and if you have customers and revenue. Essentially, the further progressed from ‘simply an idea’ you are – the easier it will be to secure investment.
4. Consider an Accelerator Program
If you have an MVP but are lacking in expertise an accelerator can be extremely useful. It could help you to create a market or business strategy or to figure out your financials and legals. Accelerator programs are run in different ways, from highly structured to highly tailored to your business’ needs (this is the approach of the One10 Accelerator program – in case you’re wondering). Every startup entrepreneur has to wear many hats. By filling the gaps in your business, accelerator programs can have you hyper prepared and in front of an investor much faster than if you tried to perform all the roles of a fully operating business. Moreover, a good accelerator will also be a matchmaker for you. They will direct you in the direction of funding opportunities and try to hook you up with the right investor for your enterprise. More on this in Step 8.
5. Analyse and KNOW your Metrics
Metrics, metrics, metrics. Make sure you know how much it will cost to scale your business before you start chasing down investors. You need to know your customer conversion rate, customer acquisition cost, average revenue per customer, and average customer lifetime value. If your business is too early to know all these metrics, see if you can research the same metrics for another business similar to yours. Commit your key metrics to memory and have an explanation ready outlining how you expect them to change when you secure funding. You need to be able to reel them off rapidly and with confidence — investors want to back founders who are 100% on top of their metrics. It demonstrates a thorough understanding of what it will take for your business to succeed and to grow.
6. Have a plan for the Funds
Have a clear plan in place for how you intend to spend investor money. Money should always be raised with a clear purpose – whether it is for an accelerated hiring plan, product development, market expansion, sales and marketing activities, partnerships, or other specific business objectives. If it’s just for operating expenses, that’s fine, but be explicit about that, and be clear about your operating plan.
Not all startups require initial capital support. Some startups can generate meaningful revenue to cover their overheads for the first couple of years, or longer. At some stage however, many companies will need an injection of cash to take the business to the next level beyond what organic cash flows could have sustained. So whether you raise money to give yourself a year or two of operating runway, or to launch a sales and marketing offensive, or launch a new product; make sure you have a plan.
7. Find a Compatible Backer
Most investors have particular industry interests and look for more than numbers when investing in a team. Just like you, they will have goals and ideals. In your meetings with investors, personal interests will come up in conversation. Don’t shy away from this. It will take you a minimum of 20 hours with a potential investor before they will be ready to jump onboard. It is important that you build a good relationship with your potential investor for two reasons:
- to increase your chance of securing investment
- to help you determine whether you will be able to work with them for an extended duration.
Be aware that you will effectively be bringing on a team member who you cannot fire. You will have to report to them, and they will have influence over the direction of your business. Just as investors will vet you, you need to consider carefully who you are sharing your business with.
8. Use your Resources
A warm introduction from a trusted source will open many more doors than a cold call. Use your networks on and off line to work out the connections between you and your target meetings and then try to find a willing referrer. Investors like to have startups that come from a trusted source and are really prepared for funding. This is where your participation in an accelerator program will come in handy. Accelerators should have an extensive network of potential investors and will know the grants available to fund your type of business.
9. Keep your audience in mind
Investors are a very different audience to customers and you should make your pitch with this in mind. Give them the information they want to know (not what you think they want to know). It is less important to spend your time explaining every little feature of your product and how it will change the lives of the buyer, and more important to show how you will fill a gap in the market and scale your business. Remember, investors do not necessarily have to be someone who will purchase your product (though it would be nice).
Try to think of the questions investors will ask and have an answer for them. Always try to preempt an argument or point of view. Don’t hope for the best because investors are financially savvy people – that’s how they got into this position. Recognise that you will face problems in your business, but present solutions or strategies of how you will tackle them. Investors want to know you have considered all possible scenarios.
10. Be Prepared!
You cannot be over prepared when you finally do get in front of the person you’re after. There’s so much competition for investment funds, so you really have to really sparkle to stand out. Ensuring that you have excellent answers to any question that may be asked requires enormous amounts of preparation not only in respect of the details of your startup. Make sure to have every aspect of your company analysed and ready for inspection, but make sure you have studied the competition as well. There is nothing worse than being asked a question on an aspect of your business or industry that you don’t know. Remember, ideas are cheap and execution is everything (as we explained in this blog post). You will need to convince the investor that your team will emerge victorious against the many other startups that may be executing a similar or same idea.