Finding financial backing for your entrepreneurial venture
Entrepreneurs seeking financial backing from venture capitalists, non-profit organizations and other sources need specific preparation prior to their first meeting. Our recent Focus on Solutions roundtable, convened at the Stanford Center for Entrepreneurial Studies in Stanford, California, brought together successful entrepreneurs and representatives from investment firms to discuss the fundamentals of this important relationship.
Financial support for your entrepreneurial venture is a key element in the success of your business. The good news is that there are investors who want to find quality businesses to financially support. Furthermore, as Lesa Mitchell of the Kaufman Foundation states, “The opportunity for women to become entrepreneurs is obvious. The number of women available to start, lead and be a part of a team is greater now than for men. Though the opportunity is there women aren’t capitalizing on it.”
Part of the reason for this lack of women led entrepreneurial ventures is the difficulty women find or think they’ll find in obtaining capital. Our panel of investors and successful entrepreneurs offered valuable advice to women seeking funding for their start-ups. We are sharing this advice with you to demystify the process and help you prepare for your initial investor pitch.
Practical Advice for Entrepreneurs Seeking Funding
Before meeting with investors
Do your research. There are many venture capitalists and nonprofit organizations seeking investment opportunities. However, each investor has specific types of investments in their portfolio. If you are a tech start-up, be sure your potential investor invests in tech companies. If not, find an investor that does. Also, investors may not want to invest in a company if their portfolio already includes a company with a similar product or service. Knowing this ahead time will avoid future disappointments.
Build a strong team. Choose strong people to join your team. Know your weaknesses and pick people that have the skills and background you might lack. Investors like to see a team with credentials. Keep this in mind, especially if your credentials do not stand out.
Test your product. You must have a working product before you meet with your investors. They don’t want to know what the product will do in the future. They want to see how the product works now.
Understand the pattern that your potential investor recognizes. Venture capitalists are pattern recognizers. They want your start-up to fit into the pattern that they understand and recognize. By researching the investors current portfolio you gain a better understanding of that pattern and you can gear your pitch toward that pattern.
Maintain the correct mindset. You’re not asking for money, you’re offering an opportunity.
Be thoroughly prepared. You need to know your business numbers and be 100% on top of your business. Anticipate investors’ questions and be ready with the answers.
During the Meeting
Practice authenticity when pitching to investors. During the initial meeting investors look for someone who is honest and forthright. They want to see a team that interacts well together. Investors have to like the entrepreneur to want to invest in them.
Make the case. When you pitch to investors, make the business case for investing in your start-up.
List your assumptions. Early stage investors want to know the assumptions behind your business financial model. Be prepared to list and defend these assumptions with real data.
Manage your risks. Every business has risks. Reveal the risks and describe how you will manage them.
Educate your investors. Build education into the presentation. Don’t assume your investors know key background information about your production or service.
After the investment
Take the time and energy to invest in your investors. Communication and accountability are the most important aspects of the investor/entrepreneur relationship. Think of the relationship with the investor as if it were a courtship. Once you’re “married” keep treating the investor as if you were still “dating.”
Use transparency by continuing to disclose the negative as well as the positive. Be open by keeping your investors engaged after the investment has been made. Remember if you’re not successful the investor is not successful. They want you to succeed just as much as you want to succeed.
Treat your investor like a partner because in essence, they really are.