Securing financial backing and the faith of an investor is no easy task for entrepreneurs.
Equally, for investors, weeding through the thousands of funding requests on a weekly basis to find the one which will lead you to their pot of gold can be a formidable challenge – the next Facebook or the new MYOB don’t come along every day.
SmartCompany spoke to some regular investors about the key things they look for in a business and what tips they have for entrepreneurs in securing funding. There’s no doubt pitching to an investor can be a daunting task. But there’s one thing all our investors agreed upon: get to know your investor before asking for funding.
Jordan Green: Know your market
For Jordan Green, founder and president of investor group Melbourne Angels, the most important thing is finding a business to invest in which knows its market.
“I look for an entrepreneur who knows their market and their customer and this is significantly underestimated in Australia. They need to have a real command of the market in which it will operate and know why their product will bring value to customers,” he says.
While some investors will favour a ‘safe’ bet, Green dismisses business ventures he deems to be conservative.
“I also look for an opportunity that is ambitious and yet credible. If anyone tells me that they’re being conservative (in their estimates), I’m not interested. It’s an inherently risky business and I’m not looking at being conservative, risk is part of it,” he says.
Green says on a good week, he comes across one idea he thinks has potential, but he believes Australia is falling behind in the global innovation stakes.
“I’m a bit of an optimist, I think there are a lot of good opportunities which Australians cotton on to, but we’re lacking in skills.
“We like to pride ourselves on being innovative, but on every global measure we’re not, but that’s not to say that we can’t be. Good opportunities are currently handicapped by entrepreneurs and investors who simply don’t know the pitch,” he says.
Personally, Green says he favours investments which have some “real intellectual property involved” and are applicable in the real world.
“I prefer opportunities which aren’t inherently online businesses, businesses which have a real business to run. There is a lot of profit and noise in the online space. Media is picking up on it, so it’s a self-fulfilling prophecy. A lot of people are moving retail online or producing the next mobile app, but these usually fail to produce any long-term returns.
“For me to actually invest in something it needs to be capable of a global success story. There is far too much assumption and expectation that everything needs to be done in Silicon Valley or like Silicon Valley – frankly, it’s only one opportunity and in many ways it’s shrinking,” he says.
Now, Green says, entrepreneurs should be focusing on inventions which capitalise on Australia’s proximity to Asia, something he believes provides “an enormous advantage”, and emphasise this in their pitch.
Pitching, Green says, is all about telling the investor the information in a way they want to hear it.
“If you’re selling, it’s your job to understand the investor and present the information, the style of the pitch, in a way the investor wants it. Equally, it’s not unusual for me to suggest to them they haven’t given the right information. This will often lead to an angry response. I understand the frustration of going out and pitching for money time and time again, but think about how you react to the advice of the investor.
“A pitch should be relatively short and people should remember to pitch the benefits and not just the features. People always want to tell you how smart they are and all the wonderful things they’ve developed. As an investor I’m interested in why people are going to buy it. Obviously if the pitch is engaging there is a lot more to be discussed. I also need to know why it’s going to benefit me as an investor,” he says.
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