Things You Should Know Before Meeting with Investors
For many startups navigating the competitive landscape and securing funding is a significant hurdle that isn’t easily overcome. The truth is, innumerable new ventures are born every day. Investors can’t open their bank accounts to every good idea that walks through the door (and those are a dime a dozen.). The ones that do secure funding, are the ones that have demonstrated how their idea will actually come to fruition.
To enter into investor meetings with confidence and the possibility of success, entrepreneurs need to be prepared in the following ways:
1. What’s your story?
This isn’t just about your product, your service or your elevator pitch. This is about you. This is about your team. This is about how you got to this point in your business. Investors want to know what it is about your background that brought you to them with the solution you’ve created. They want to hear what previous experience you’ve acquired that makes you the right person to invest in.
The hunger is important here. I’m not talking about arrogance or boastful assurance but the passion that drives the business. Investors aren’t just investing in a company. They’re investing in the person behind it. They want people who will work diligently and with zeal (and, as a result, make them a return on their investment).
Know your story. Practice it. Be prepared to tell them what your company does, who you are and how you got there…and all within a relatively short period of time.
2. Understand your financial situation.
Experienced investors know there are few legitimate overnight successes and that realistically they will be lucky to see a return on their investment in the next decade.
Many newbie entrepreneurs, eager to prove the merits of their great idea, make the mistake of entering the discussion with an unrealistic value of their company. Not being realistic about the financial situation of your startup from the beginning shows a lack of understanding and frankly maturity, in regards to your ability to lead a company to a successful return down the line.
Ideally, an investor is looking for a company with a clear and scalable business model they can get behind and help grow.
3. Know your split.
Each entrepreneur has his or her own ideas about equity offers to investors. Depending on the amount of money they’re coughing up, some investors will want a lot of equity and some will want a little. Whatever the case, it’s always a good idea to go in with your own idea of what’s a reasonable split. Be careful not to give so much away that it diminishes your incentive to work, owing to the few profits you’ll stand to receive in return for your efforts.
Personally, I like entrepreneurs to make the first offer in equity. They had the idea. I want to make sure the equity I’m taking keeps them engaged and thrilled to grow it.
Do the maths. Whether it’s $50,000 for 5 percent or $1,000,000 for 5 percent, make sure you’ve run the numbers and can see when the deal makes sense and when it does not.
4. What’s the money for?
Map out what you plan to do with the investor’s money. This doesn’t have to be written in concrete, because we all know things in a startup are ever-changing, but have a plan that galvanizes the “big idea” for your venture. If it’s to hire more people or buy more space or pay your salary, say that. Be up front about what the money is for.
Investors may not always agree with the terms or ideas you’ve laid out, but they’ll see a committed founder who knows where his or her next steps are headed. (Instead of someone looking for money because he or she believes it’s just the next step in having a startup.)
5. Utilise your management team.
Great leaders aren’t successful on their own. They surround themselves with people that add value to their business, and you need to do the same. Investors need to feel confident that your team is the right one to take your company from a small, great idea and turn it into a high-yielding investment for them. The goal here is to convince an investor that your team is prepared to face all the challenges and criticisms that come with running a business. You can’t do that if you haven’t fully vetted your management team.
Know your team. Their past experiences and failures, their skills and knowledge, their strengths and weaknesses, and understand how that might benefit your business in the long run and use this information when speaking with investors.
6. Have a clear go-to market strategy.
Entrepreneurs just starting out often make the mistake of not understanding where their idea fits in the current marketplace. (If you aren’t targeting the right market the chances of a successful exit will be small.)
Having a clear go-to market strategy that demonstrates the potential for your company’s sustainable competitive advantage is of the highest importance to an investor. That said, some entrepreneurs have a difficult time articulating a clear plan to reach a target audience and how to scale it over time.
7. Don’t overpromise.
Potential investors are going to ask a lot of questions. The key here is to be honest with them, foregoing any bluster or pretending. As a young company, there will be many things to figure out. Don’t cover up your uncertainty by lying to or overpromising an investor.
Sometimes I ask a question to which there isn’t an answer, because I want to see if they can admit when they don’t know or if they’ll just make something up instead. It’s a red flag if an entrepreneur is that desperate for money. Being able to recognise your company’s current limits or unforeseen changes means you can look at your state of affairs through a realistic lens.