Getting Investors For Your Startup
Having a great idea is one thing. Having the money required to transform your business plan from concept to commercialization and to move your company from startup to IPO – that’s a completely different matter altogether.
Many people do have great ideas but fail to grasp that others may not share their enthusiasm, sometimes simply because they don’t understand what you are trying to achieve. In order to convince other people – specifically Angel Investors and VC’s – to invest into your business, you need to be able to understand exactly what those people are looking for when evaluating a business.
Too many technopreneurs fall in love with their idea and expect everyone else to immediately “get it”, once they start talking about their business. They sometimes forget one simple yet very important point about business: the only reason for a commercial business to exist is to make profit. And any investor in your business will want to see how you can create profit, and by doing so ensure a healthy return on investment for them. So if Angel Investors and VC’s are interested in your company you need to remember that your presentation should be focused on how you can make money for them, and not how great the technology is behind your business idea.
With this in mind here are 8 important messages you want to convey when meeting with a potential investor:
- What is your business all about? Investors usually have a very short attention span. You need to be able to convey the essence of your business idea to them (and anyone else you meet for that matter) within 1-2 minutes.This is where the elevator pitch comes in.The elevator pitch has its origins in the idea of meeting the CEO of the customer you are targeting while stepping into an elevator of a high-rise office building in the ground floor, and using this opportunity to convince him to invest in your company while riding the elevator up to his office – presumably on a high floor in this office building.
If you can’t convince someone within 2 minutes that your business may be worth investing in or at least interesting enough to listen further, then you won’t be able to do so in 45 minutes either.
- What is the problem you are trying to solve? Before you embark on explaining the intricate detail of your Tech Startup you need to ensure your counterpart understand the problem you are trying to solve. The bigger the problem, the more important your potential solution and the more exciting your business proposition. Don’t assume everyone understands the problem as well as you do, and don’t cut short on this part. Make your audience and your potential investor understand how big the problem is, make them feel the pain of the problem and get them really interested in what you can do to solve the problem.
- What is the solution that you offer? Now you can expand on how exactly you plan to solve the problem you have just explained in detail. Try not to go into too much technical detail unless your counterpart is as technically savvy as you are (and most probably they are not). Investors usually don’t want to know the exact programming language, database or API’s you use to solve a specific problem. They just need to be convinced that you know what you are doing, and if you are able to keep it simple, you come across more confident – which is potentially more important than coming across as a tech geek.
- Why are you the best team for this job? Once you explained the problem and the solution you may want to give the potential investor more background about yourself and your team. VC’s invest in people more than they do in a technical solution, and they really would like to know what you bring to the table with respect to experience and expertise that should convince them to part with their money and invest in your business. If you have started a few companies before that made money and were sold at a healthy profit – now would be a very good time to mention this and give examples.
- How big is the market? Here the usual principle applies: the bigger, the better. Investors would like to know that the potential target market is big enough to build a sizeable business that can create the returns investors are looking for. Don’t necessarily limit your target market to your local environment, but think big and see how you can create an offering that might be attractive to a larger audience.
- Who is the competition? An answer like “we are so unique, we have no competition” is not the answer you want to give. If there is no competition to provide a solution to a bigger problem, then you most probably don’t have a viable business. Remember that competition can come in many forms and variety. Air Asia build their business plan not competing with other airlines, but competing with busses and all other travel means. Your competition can and will come not only from companies doing exactly the same as what you might propose, but from related industries.
- How will you make money? Investors like to see that you have thought through your revenue model in detail, and understand how you will commercialize and monetize your business idea. Having many fans, customers or visitors will get you started, but only profits will make you rich.
- What do you want from the investor? You need to have a fairly clear idea what your expectations are from the Angel Investor or VC. Do you just need money to fund your regional or global expansion? Are you looking for subject matter expertise to complement your existing board? Do you need access to networks and potential partners, or do you need a strategic partner providing guidance in your growth?
There you have it – 8 questions that angel investors and venture capitalists will ask you for before investing into your business. If you can answer those questions in a convincing manner, then you have significantly increased your chances of securing funding and getting your investor on board.
– Harald Weinbrecht