Money is essential when it comes to running a business, and when a business is young and trying to develop a prototype of a product or gain market share more likely than not they will require financial backing from investors. Regardless of the amount of money that you are seeking for your business or idea, there are five things that you will want to make sure you have in order before you approach any investor about backing your business. Let’s take a look at the things you should be focusing on as you prepare to approach investors.
1. Know Your Investors
Before meeting with any potential investor you should do your homework on them. Matching your business needs and long-term strategy to the right financial backers is going to make you a lot more successful in getting investors to put money into your business. You should go after potential investors the way you would go after a client.
2. Solidify Your Team
Every investor is going to want to know that you can do what you are setting out to do. Starting any business is hard and takes a lot of ambition and dedication so your co-founders, managers, employees etc need to be as dedicated as you are to get the business off the ground. Investors want to be confident that you and your team are going to accomplish what you set out to do. When meeting with investors make sure that your key people are active in the conversation and can answer questions about the future of the business.
3. Create a Pitch Deck
When it comes to writing pitch decks the name of the game is detail. A lot of times entrepreneurs leave key figures out of their pitch decks and can be overly confident in the numbers they do provide. It is important to know how much money you spend a month before the business is profitable, or your burn rate. Plus, you need to know where your break-even point is. You are going to want to know your cash requirements for the first year of operation, your gross margin, and how these figures compare to industry norms. The key takeaway is that you need to convince your potential investors that you know more about this business than anyone else.
4. Make a Wish List
Write up a list containing all of your ideal investors. Remember, that when you accept someones money you are starting a new relationship with them that will likely last for a long time so don’t rush into any decisions. Business experts estimate that the average business owner can only maintain 6 separate conversations with investors at a time. So when approaching the names on your list start with 6 and if some of them don’t work out move down to the next. Eventually, you will be able to whittle your list down from 6 to 1 or 2.
Your business probably has little to no credit history of its own. Still, investors will want to feel confident that you and your business can appropriately handle money, especially when it is theirs. You can get your credit reports from the three main credit reporting agencies Trans Union, Equifax, and Experian. If you find any mistakes on your credit report contact the creditor listed and send a letter to all three credit reporting agencies. If you’re starting a business, you realistically want a credit score of 710 or higher. If your business is already seeing cash flow, you will probably be fine with a score of 680 or more. If your score is lower than 680 start making plans to improve your score, lenders are going to be very wary of lending you money with poor credit, investors may not care as much but it is still smart to have your credit in order before approaching them.
Preparation is key when approaching investors. Don’t be caught off guard!