Strategies for obtaining financial backing
Our Focus on Solutions roundtable at the University City Science Center in Philadelphia sought input from successful entrepreneurs and investment firm representatives from the region.
We discussed key elements in the entrepreneur's quest to obtain financial backing for their business. Investors spoke about the specific qualities and information they look for in the initial meeting with entrepreneurs. Entrepreneurs gave advice on how to work with investors to increase your odds of a successful relationship.
The First Meeting: What Investors Want to See
You're not selling a product,
you're selling an investment.
Be an expert in your space. Investors want to see that you are an expert in the core concepts of your business. You also need to understand the trends and future of your industry. Know the other venture capitalists who invest in your type of business. Understand your competition. Be prepared to name your biggest competitor and describe how that competitor succeeds or fails in the marketplace. Also know how many other companies currently offer the same or similar services or products as you. Know what works and doesn’t work in the market place from experience not intuition. For example, don’t say, “The world needs this product.” Instead say, “This is what the product will cost and the customer will pay this amount for it.” Go into the meeting with a detailed knowledge of your initial funding requirements as well as what your requirements will be over time.
Provide a business model that details how the investor will make money. Passion, enthusiasm and creativity are an important part of your pitch. But the investor really wants to know if your business will make a profit and when this can be expected. Know your numbers and be prepared to back them up.
De-risk your business. Investors want to see how you can lessen the risks associated with starting and growing your business. Anything you can do to de-risk an investment will make the potential investor happy. Already having traction by having customers is a great way to demonstrate a lower probability of risk.
Come to have an honest discussion. Investors want to see that you are doing due diligence. You must continually look for answers and demonstrate that you are realistic in your goals and expectations. Be open to hear negative feedback. Detaching yourself from the emotional side of starting a business helps when listening to negative advice. Be open to ending your business. You may go into an investment meeting and find out that your type business has already saturated the market. Be prepared to start over. You can still benefit by making a good impression on the investors and setting up the potential for the next meeting with a new product or business. Creating a rapport with the investor will benefit you in the future.
Be able to talk about the money. Investors need to see a very clear need for the product. Not just that it’s a better product, but that it’s a better product and will make money. Describe the market segmentation and explain how the market segments work. Include market research and customer endorsements. This demonstrates a viable market and customer base. Bring in a reasonable valuation of the company based on current market trends.
- This amount of money will get me to this particular place and this is how it’s going to do it.
- This is what my product is and this is how it works.
- My product works better than other similar products because…
- My customers are really excited about this product because…
Demonstrate your ability to get things done. To tell the investor where your company will be in two months and show the steps. Investors gain confidence when they see that you are able to spend the time needed to fundraise while still moving the business forward.
Finally, investors want to see the ability to sell. Not just your product but also your business idea. You, as the CEO, will mostly likely want to sell the company at some point. The ability to sell your business concept to the investor is an important aspect of a CEO’s skill set. Also, indicate that you understand that nothing goes as simply as expected and you and your team are prepared to meet any challenges that arise.
Investors like serial entrepreneurs because they understand the process.