Investor Approach- 8 Steps to Executing a Successful Funding Campaign
When investors look at your project, their number one thought is how they are going to get their money back at a substantial profit. As in all “selling” situations, you want to do everything possible to reduce the buyer’s sense of risk and to differentiate yourself from other companies. You must not only make an investor understand your proposition, but also enable them to answer questions raised by investment partners, family or other advisors the investors may go to before making an investment in your business.
“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”- Colin Powell
Step 1: Ensure Your Idea is Fundable
Before you start working with investors, it is critical that you take a hard look at your product or service and ensure your value proposition is a fundable idea. Investors like companies that have the capability to address markets that hold Customers with Deep Pockets, and the freedom of maneuverability to address markets that have high or low entry barriers
Step 2: Give Yourself Breathing Room
It’s hard to make good decisions when you’re boxed in and forced to jump at the first investor that comes your way. For that reason, it is critical you give yourself breathing room, time to address all potential issues and have alternative scenarios in place when you are raising capital. The number one way you can accomplish this is to ensure you have enough emergency money in place before you make a large move.
Attend any angel investor forum and you will see a room full of desperate business owners searching for cash. Sadly, their desperation can at times have more to do with their company not getting funded than the business proposition. Investors are looking for confidence, credibility and as low risk as possible. If they see desperation, they will be far less likely to invest with you. After all, if you were willing to risk your family’s security, what makes them think you would not be willing to risk their cash.
Step 3: Determine how much you need and what you are willing to give up
Before you approach investors, you MUST have a clear idea of how much capital you need and what you are willing to give up for it. For an extensive list of what to keep in mind, please see http://www.solution4growth.com and request our e-book, “8 Steps to a Successful Funding Campaign.”
Selling too much of the company too soon will cause premature dilution of ownership and loss of control. Future investors may also be less inclined to invest if they see conflict with an existing shareholder and lack of one clear person in control. Thus, the wise business owner will at least try and structure the deal so the investor can see an acceptable upside while the business owner still remains in control. It is important that you start looking at this issue now, even if you do not need capital yet.
Step 4: Prepare
The primary item you need to prepare and take to an investor meeting is a completed investor package; a one-page summary of your business opportunity, a 20-30 page executive summary, a 20 page slide presentation, and a full set of financials. The investor package clearly states your opportunity in a format that is intelligible to funders. There are so many entrepreneurs and small business owners that do not put sufficient time into this process, as a result they do not have the answers to questions investors need to know in order to fund.
The main point to remember is this, when you are approaching investors and are prepared with the answers to their potential questions addressed in your investor materials and elevator pitch, you will have a much better chance of getting funded. If you do not have connections or are unfamiliar with presenting to investors, an advisor is a critical addition to your team because you will only get one chance to make a favorable impression on each investor!
Step 5: Profile
While you are at the end of the process of completing your business plan or after you have it completed, it is time to start profiling your potential investors. In this stage, you will want to gather as much information as you can about people or groups you are planning on approaching. You will want to start out by thinking about your ideal investor.
In order to be SEC compliant, you must have had at least three DOCUMENTED interactions with them within a certain amount of time before going to them for an investment. For Texas, it is 15 days, but for some other states, it is 30 days, so check your state SEC guidelines. The point in establishing these relationships is to have people to reach out to in order to grow your business. SEC regulations should not be an issue as you will not initially go to them for funding.
There is certain information you need to know about your investor before you approach them. It is critical you gather this data! There are ways to gather the information without directly asking. In fact, it is important you DO NOT ASK most of these questions, as they can sense you are being snoopy. The best solution is through simple observation and discussions about their lives.
Look for the RIGHT kind of investors. One of the dangers that many firms get themselves into is taking on too much of the wrong kind of investors in the beginning so they can expand quickly. In your current state of mind, you may only be thinking of getting the dollars in the door and not about bringing in dollars from investors that have more to offer.
Step 6: The Approach
Now that you have done your research on potential investors, it is time to make your first approach. On your first approach, your goal is not to secure an investment right away. Your goal is to get feedback and advice. In the property world, this is invaluable. I would call up the most seasoned investors in my database and get their opinion on key points such as returns, which ensured I had what investors were looking for before making the pitch.
Ask them for their advice as a trusted advisor and topic matter expert. People are extremely willing to help and often feel honored at being chosen to help refine your plan.
The information they give you will be key in structuring your offering. This exercise is not only a powerful selling tool, but also a great way for you to take off all of the window dressing of your firm and get a bare bones look at what could go wrong.
Step 7: The Presentation
Approximately 1 out of 1000 businesses get funded from external sources other than friends and family. With these odds, you need to have every advantage you can get. So what are the best ways to get that advantage?
1. Be well prepared.
2. Have the key leadership of your firm in the room during the presentation.
3. Check your EGO at the door.
4. Have multiple conversations with the investor before investment is even approached.
5. Turn their objections into conditions of the investment.
6. Stress bootstrapping.
7. Close them.
Step 8: Be Picky.
This next statement is going to sound radical so hang on to your hats: Firms that are picky about the investors they LET invest with their companies have a much better chance of getting funding. I know many of you out there are saying, “Be picky, I cannot even find people who want to invest, how can I be picky?”
There is an approach to follow that will increase your chances… To order the full Investor Approach Work Book or attend a class, log on to http://shop.solution4growth.com/Investor-Approach-8-Steps-to-Successful-Funding-000JS.htm
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