The number one problem new businesses have is a lack of funding. Limited cash flow is a difficult hurdle to overcome.
Great ideas are a dime a dozen, but the capital to make them happen is harder to come by.
Once you have an idea for a business, it’s easy to become enamoured with it. But you should always consider whether it will make money. Nine out of ten startups fail. This is why most entrepreneurs need a reality check. You can’t get too emotionally involved. Instead, be business minded.
First, do your research and talk to potential customers. There are several questions you should ask yourself before you even think of trying to attract investment. Has it been done before? Can your idea be patented or protected? Will it require you to enter a heavily regulated industry?
These questions will help you understand how much funding to attract in the first place. The more barriers to entry, the more funding necessary to get off the ground. Once you understand the market and the profits you are likely to make, then you can think about putting a valuation on your business.
It is vital you don’t value your business too high, or you’re open to being laughed out of pitch-meetings. But the opposite is also true. If your valuation is too low, you risk ending up where you started in further down the line and needing to raise further investment. No entrepreneur wants that.
In the early stages of your business, people will knock you for your lack of traction. But a competitive idea and an attractive valuation are a good first step. If your pitch is also engaging and well-researched, then you are in a great position to attract investment.
Not only do you need to know your product and its market inside out – you need to understand the investor. If you are pitching to angel investors directly, then make sure you understand their interests.
In order to nail your pitch, you need to ensure your figures are up-to-date and representative. You’re asking an investor to take a serious risk by funding your business. It’s vital you get this right.
They’ll want to see evidence of a solid business plan, as well as a full set of financial records. You must show them that your business is structured for growth, with the right management team in place to make it happen.
However, the most important aspect in a perfect pitch is practice. The best way to prepare a is to overprepare. You need to be able to pitch in your sleep. Rehearse it over and over until you have it nailed. Then rehearse it again. There might be an opportunity to sell your idea when you least expect it.
The importance of soft selling
An alternative to the traditional aggressive sale pitch is a softer approach. This method can be both more subtle and more persuasive. The idea is to create and develop relationships with potential investors, rather than hard selling from the get-go.
If you network with the sole goal of forming relationships, you may be more successful in raising funding than you might think. Be open to making connections with everyone, even those who don’t invest in your sector.
You never know when a relationship might turn into an opportunity for funding, either directly or through referrals. If you network correctly, it’s possible that when you do come to pitch hard, potential investors will have already heard of your company.
This will certainly increase the likelihood of them investing. Being a well-known brand is the firepower in your back pocket. Investors receive hundreds of pitches over the span of their career, so sometimes the best, and most natural tactic, is not pitching at all.
What can you give back?
If you can take away just one point from this article, then this is it. When trying to receive funding for your venture, you must understand the mind of an investor. They might like your business idea for its social message or because of its unique branding, yes, but this is only because they see an opportunity for a return. These relationships are a two-way street.
Always ask yourself how you can give your backers a return on investment. If you are truly passionate about your business, and you know your stuff, investors will be chomping at the bit for a stake in your company.
Whether you are evaluating your idea or selling it (hard or soft), always remember to consider what you can give back. Investors are not a charity. While many make a loss on their angel investments, you have to strive to make your company the exception.