How to Attract Investors for a Startup
It’s easy to get caught up in the excitement of starting a new business and not realize how much it really costs to get things up and running well. Most entrepreneurs find that it costs more money and more time than they anticipated. In addition to giving a new business adequate time and resources, there are many benefits to developing a well-thought-out business plan. Good planning reduces your time, effort, spending and energy. Even the best-laid plans may require more funding than you’ve been able to raise on your own. That’s the time when it may be wise to seek investors to finance your operations or marketing plans. In exchange for financial help, investors want assurance that you’re investing your time and money wisely and intentionally.
Those who are successful in attracting sound investors know how to get and keep their attention, and they keep at it until they’re successful.
Ways to Attract Investors
There’s no specific formula for attracting investors to your product or service. However, past entrepreneurs are usually willing to share some tips that helped them get financing. The important thing is to start moving in the direction of seeking investors and learn from your attempts and mistakes. Here are some strategies that anyone can try:
Create a Realistic Budget
Before investors will take a chance on your business, they’ll want some assurance that you’ve had a good track record selling your products or services on your own, and that you can successfully run a business.
Keep careful accounting records of the costs of raw materials, equipment, labor and operating costs so that you can estimate revenue projections with some degree of accuracy. Having good records shows that you can back up what you say with hard numbers, and that you’re serious about the business end of the business. You’ll also need to share your current and anticipated future expenses to demonstrate your profitability margin. Records will also show you where you have room to add more funds for marketing purposes.
Savvy investors know that if you’ve already had some success with customers, many more customers are waiting to buy. Early sales will prove to investors that your products or services are priced competitively. They’ll be ready to hear about your successes and milestones. Be ready to share stories of marketing success and your future plans for growth.
BoardEffect provides an electronic platform where boards can store budget-related documents and marketing efforts and record investor pitches in the security of the cloud. This program helps board directors track and manage their investment strategies through an annual cycle.
Soft-Sell Networking
Soft-sell marketing is a less formal way of seeking investors. Everyone knows people, so it’s something anyone can do whether they secure investors through other channels or not. The idea is simply to mention your new business at social gatherings everywhere you go and let investment opportunities occur organically.
Ask friends for advice. They may not have any to offer, but they probably know someone who does. Soft-sell networking will attract investors who have the same interests as you, and you can’t know who may be interested in your business until you tell them about it.
Get to Know Potential Investors
When you connect with investors, they’ll be researching you and you should research them as well. Find out whether they’ve invested in products or services similar to yours in the past. Perhaps their business philosophy matches closely with yours. Whenever possible, take time to get to know them personally and professionally. You’ll have better luck working with investors whose interests mirror your own.
Don’t be shy about asking investors to be co-founders. Additional perspectives and expertise can be a beneficial asset, especially when your new co-founder has valuable knowledge and connections.
Follow Investors on Social Media
Like many people, investors tend to have well-rounded profiles on their social media channels. Find them. Friend them. Follow them.
Look for topics and themes they use frequently on their blogs and in their videos. Get connected with them and let them know that you’re an avid follower. Many times, they offer workshops and seminars or appear at conventions as keynote speakers. Take advantage of opportunities to meet them in person and get a conversation going. Personal contact just might make the difference in getting a private appointment where you can make your pitch.
Is Your Pitch Investor-Ready?
Believe it or not, most CEOs dedicate at least six months to pitching to investors. This part of the process will probably increase your budget if you haven’t planned well for it. Expect to have additional costs for travel, food, fees, and quantities of your product and marketing materials.
Don’t make the mistake of pitching well above or below your level. Small startups should be looking for smaller, lesser-known investors that have a reputation for investing in similar products or services as yours.
Businesses that are larger and that have a fair amount of established cash flow should seek out bigger investors that can offer larger amounts of capital.
Getting the right-sized investor will prevent you from wasting your time and theirs.
Practice Your Pitch
Practice your pitch to perfection. Learn how to tell as much about your business as you can in the space of a short elevator ride. Your short pitch should include a quick overview of your product or services. Your longer pitch should be well organized and encompass a description of your product or services and why customers are eager to get it. Help them understand where you are now, what their capital will help you to do and, most importantly, how they can expect to get their return on investment.
Be sure to share with investors who your target customers are. Consider presenting them with a spreadsheet that shows how long your customers have been loyal to you and how much they’ve generated in sales from each customer. If you can, try to secure some testimonials from satisfied customers who describe their experience and satisfaction with your product or service.
Practice your short pitch on everyone you can find and fine-tune your long-pitch for the most viable investors.
Perhaps the most difficult part of attracting investors is learning to graciously accept a “No, thank you” or “Sorry, but your product/services isn’t right for us at this time,” and then go into your next appointment with an investor with full confidence. It can help to accept that you’re apt to get more declines than acceptances during your investment-seeking phase. Learn from the investors’ advice and suggestions, and don’t give up.
