This article first appeared in August 2010.
I’m looking for potential investors for my new business, but I don’t think I’m prepared to face any yet! What do I need to do to be “investor ready”?
Some of the things that investors look for before investing into an early stage business are:
- Management expertise: An experienced and stable management team not only knowledgeable about the industry and product, but capable of successfully implementing the business plan and managing the company’s operations. Investors invest in management who are committed to the long-term objectives of the business. As a start up, you might be the management team! So what you need to do is demonstrate that you have what it takes to execute the business plan. And if you are light on experience in certain areas, employ or bring in the right expertise (as an advisory board for example) that can complement your skills and give the investor confidence.
- Business plan: Develop a realistic investor-ready business plan (featuring a detailed and realistic business strategy of current and future plans). There is a lot of business planning software available on the market and it’s fairly cheap. Without a business plan, the investor will have no confidence in what you are proposing to do, or how you will do it.
- Forecasts: Prepare some realistic and achievable financial forecasts that show potential for solid but not unrealistic returns for the investor.
- Flexibility: Be open to include, if required, the investor on the board or in the management of the business.
- Market research: Make sure you have a comprehensive understanding of your customer (target market), including market size, demographics, trends, pricing strategies, accessibility, growth potential, demand for products and services and commitment to business development.
- Valuation: Have a clear idea of the valuation of the business, the equity available for the investor and a strategy for the exit for the investor.
- Use of funds: Explain how the investment capital will be used to grow the business.
- USP: You must have a Unique Selling Proposition – in either product, distribution, profit, returns, management, location, contacts, technology, barriers to entry, patents or other unique competitive advantages.
Approaching investors unprepared is probably the single most common reason why entrepreneurs fail to attract capital. Some investors see 10 or 20 deals a week. If your proposal does not include all of the above, chances are you won’t get past first base and they are immediately onto the next deal.
Once you learn how to make your business “investor ready” and you succeed in attracting an investor the first time, going for subsequent rounds of funding, or funding a new venture becomes much easier. So if you want to become a successful entrepreneur, it’s worth spending the time and effort to learn how to make your company “investor ready”.