Channel TEN reality show SharkTank has made it obvious there is no shortage of smart ideas in Australia. Technological advances and innovative venture capital incubators have made entrepreneurship more accessible than ever before.
However seasoned investors won’t fund companies if they feel their risk is too high and if they don’t feel there is a reasonable chance that they will receive a significant return on their investment. It is imperative your startup lays solid foundations right at the beginning as business can grow very fast once the first round of funding is received.
Don’t let a small budget deter you from setting up systems and getting the right processes in place from day one. Good organisation will help avoid chaos and minimize pain as your startup grows. Take advantage of consultants, mentors and your network to engage the right professional expertise from day one.
Here are 10 tips to help you create a startup that investors will want to fund.
1. Solve a problem
Every successful business venture must define a problem and provide a solution. Explain it in the easiest terms possible and quantify the benefit. Show that you know exactly what the problem is that you are solving and that it won’t take years for customers to adapt.
2. Define your business model
Don’t only show how your product solves a problem; demonstrate how the company will make money and where there is substantial potential for growth.
3. Have a great management team
Investors invest more in the person than the product or service. Surround yourself with people who are smarter than you and who have a successful track record.
4. Gain traction
The best way to make your company appear less risky and more appealing to investors is to show that people want what you are selling.
5. Protect your intellectual property
Businesses become much more fundable to investors when they have proprietary protection on their product.
6. Hire a quality accountant
An accountant is a company’s most trusted adviser. Investors won’t fund companies that can’t produce quality financial statements. Understanding the benefits of research and development and other government incentives is critical. It is also important to be structured effectively from the beginning to avoid expensive restructuring costs down the track. Having an effective tax strategy can also greatly affect your cash flow and desirability to be funded.
7. Hire a good lawyer
If you plan on selling equity in your company or implementing an employee share scheme to attract quality people and you don’t want to be sued, you must have a knowledgeable lawyer. Intellectual property and trademark protection are also important considerations.
8. Know your use of funds and milestones
Investors want to know how you plan on using their funds and what milestones will be achieved with these funds.
9. Don’t overvalue your company
An unrealistic valuation will turn off investors to any deal. In today’s economy, as good as your idea may be, the money you are seeking is more valuable.
10. Practice your pitch
If you can’t effectively pitch your company, you will not raise capital. Get in front of as many people as you can and perfect your pitch.
Funding your startup is an extremely arduous process. It takes an incredible amount of work, faith and determination. Just remember this: Each time you hear ‘no,’ you are one ‘no’ closer to hearing yes and getting your company funded.
Allan McKeown is the CEO and Founder of Prosperity Advisers.