Are you finding it difficult to get investors attention on your idea? If YES, here are 15 tips on how to convince investors to invest in your business guaranteed. Finding and convincing investors to fund your project is often very difficult for entrepreneurs because most of them are not trained for this activity. Quite a lot of business owners put all their focus on the product or service they offer, but they have very little knowledge of how to fund their business.
As a startup business, you need to bring an idea that is new and fresh to the table in order to get you noticed in the entrepreneurial world. However, it takes more than just a good idea to get investors to whip out their wallets and fund your business. In this tough economy, you may think that it is close to impossible to find a reasonable source of capital to start your business, but the truth still remains that there are millions of people who are willing to invest their money in other people’s businesses.
However, these investors are not giving their money to charity, they intend to make a decent profit from their investments. With the current interest rate of CD’s and treasury notes having gotten so low, investors are willing to consider other high yielding investment sources.
In order to convince a private investor to invest in your business, you will have to convince them that you are worth the risk. By observing the following tips when seeking investment, you will increase your chances of convincing an investor to take a chance on you.
15 Tips on How to Convince Investors to Invest in your Business
Table of Content
- 1. Have a Business Plan
- 2. Show to the investor that there is a high demand for your product or service
- 3. Show results first
- 4. Ask for advice
- 5. Pitch a return on investment
- 6. Join a startup accelerator
- 7. Follow through
- 8. Key into online fund raising market
- 9. Avoid herd mentality
- 10. Provide details about the potential investment
- 11. Show that you have invested in your business
- 12. Anticipate challenging feedback
- 13. Outline how your business will function
- 14. Do not over value your company
- 15. Ask for what you need not for what you want
- 16. Talk to the right investor
1. Have a Business Plan
The first step to convincing investors to key into your idea is to draw up a business plan. Your business plan should contain what your business is all about or what it has to offer, goals you aim to achieve, how you intend to achieve the said goals, who your potential customers are and strategies to entice them among others.
A business plan serves as a road map on how you will start and ultimately improve on your business. Furthermore, a concrete business plan will assure potential investors or partners whom you may approach that you are serious, therefore giving them a reason to support you.
2. Show to the investor that there is a high demand for your product or service
You should make use of statistics that you have gathered from census reports, economic reports, the internet and relevant news articles to show that there is a need for your product or service in the real world. For instance if you want to get your new catering business funded, you can write something like this: “the North American Association of caterers has estimated that in just the previous year alone, over 60 million dollars was spent on catering in your target area.
Despite the sluggish economy, the number of events that are traditionally catered has not reduced. However, a lot of people would prefer to go for an option that did not cost them a lot. This means that the discount pricing and quality service will definitely give this business a competitive advantage over other businesses that are on ground.
3. Show results first
Here is a paradox that some entrepreneurs face; you need money in order to get customers, yet, you need customers in order to get money. Even though this may seem like a vicious cycle, it is worth trying to get customers before you try getting investors rather than trying to find investors first before you get your customers. You should try to make plans that will get you your first customers before the investors roll in.
This is doubly important for first time entrepreneurs because it will be easier for them to get investments in good terms if they already have a bit of traction first. Furthermore, a lot of investors will like to have some sort of proof that this idea, product or service that you are proposing will work out. What better way to prove this to them than showing them real paying customers. Your user reviews are a very powerful weapon in any pitch you go for.
4. Ask for advice
Instead of calling investors and asking them to invest in your business, you can consider asking them if you could make a few inquiries from them. Cold calls and emails to investors begging them to invest in you can a times reek of desperation so why not just try something else like seeking an advice from them.
By reaching out to an investor for advice, you may be able to build a relationship with him or her which will result in them being more willing to invest in what you are doing. It also gives them a chance to point out potential flaws in your business or business plans and how to overcome it.
Avoid being superficial or trying too hard to “sell” to them. Try being upfront about that challenges and struggles you face and then involve them in your battle. Convincing someone to invest in you a lot of times means building trust.
5. Pitch a return on investment
While investors may believe in your idea or business, the truth still remains that they invest to make profit. Therefore, it is always a good move to highlight to them what they stand to gain from investing in what you have. A lot of entrepreneurs tend to focus mainly on themselves or their Business model, but the investors want to know what is in it for them.
It does not matter if you are pitching to an angel investor, a venture capitalist or that your rich relation, you need to show how you are going to get them a return on their investment. The best way to make an impression is to clearly illustrate how and when you will get them their return on investment.
6. Join a startup accelerator
Startup accelerators support new businesses with growth potentials. For a first time entrepreneur, it is advisable to join a reputable startup accelerator (if there is any in your area) that can lend their network and credibility to your startup. Mentorship is another one of the many benefits that are inherent in startup accelerators. Even those these accelerators are not guarantees that you will get an investment on your business, they however make your business more appealing to investors.
7. Follow through
Even though seeking for funds to start your business can keep you busy, but if you say that you will follow up with a potential investor, you should do so. Raising funds for a new business can take a long time so it is advisable to start seeking for funds before you even need them to start operations.
In order to keep your potential investors abreast with what is going on, you should tell them where you are currently, where you will be before the closing of the next round and what the new capital will enable you to achieve. Get them to agree that the metrics makes sense and then notify them. Everyone admires someone who has a track record of doing what they say they will do.
8. Key into online fund raising market
Even though networking in person is very important, you should not let it become a limiting factor when it comes to getting an investor. With the ever increasing popularity of online fundraising platforms like AngelList, Circleup, Gust et al, you don’t have to be in Silicon Valley to be able to get investors for your business.
9. Avoid herd mentality
Doing exactly the same thing or a similar thing with other people is definitely not the way to go if you intend to get investment from investors. To attract investors to your business, you will have to make sure that you product brings something new and fresh to the table and that it solve a pertinent problem. A lot of entrepreneurs just take something that is already existing and tweak it a little, so try to tow a different line.
10. Provide details about the potential investment
Most times, investors like to know how you intend to use the funds they disburse to you. Do you intend to spend it to hire more staff, carry out marketing, further develop you product technology, bail yourself out of debt et al. The more you clarify your intentions for additional funds and the urgency of the situation, the more successful you will be.
11. Show that you have invested in your business
Investors like to see that you have invested your money into your business and not only your time. In this case they know that you also stand to lose if something goes wrong. Investors want to make sure that you are fully committed to your business.
In that vein, while it may make more sense to keep your day job and work on your business on a part time basis, most investors will prefer that you are dedicating all the time that is necessary to ensure that the business becomes successful.
12. Anticipate challenging feedback
The most successful pitches are the ones in which the entrepreneur has anticipated potential question and also has satisfactory answers prepared ahead of time. No matter how detailed you pitch is, your investors will still have questions that are intended to test your knowledge and see how you can deal with difficult situations.
If you have prepared your answers on time, it will go a long way to prove to them that you are committed to your idea and you will not abandon it in times of difficulty. You will need to know who your competitors are, what your competitive advantage is, the qualification of your team members and what level of success you have achieved so far.
13. Outline how your business will function
Even though you do not need to present an in-depth detail of how your business works, having a basic outline of how your business will function goes a long way to show that you have thought your business through. For instance, if you intend to sell a physical product, then you then you should explain to the investor how you intend to get them, store them, deliver them et al. If your business is service based, then you should how your customers will be taken care of.
14. Do not over value your company
Investors are not just swayed by large figures, so making a claim that your business will turn in a large amount of profit is not just enough. Moreover, most investors will know exactly what your business is worth or will make their own research to ascertain the authenticity of your claim so why lie? If your figures do not add up, then there is no way they will be doing business with you.
15. Ask for what you need not for what you want
Almost every investor will calculate the likely cost of implementing your plans for expansion, diversification and other such things. Asking for an investment that will not cover your costs will present you as an ignoramus.
However, if you ask for too much money, most investors will begin to wonder what you intend to do with the surplus. So how do you surmount this? You will have to develop a (near) accurate figure for the capital you need and also stick to it in your investor’s presentation and negotiations.
16. Talk to the right investor
Every investor has a particular market(s), amount of cash and company size that they are willing to invest in. You will get the best result from pitching to investors who are “into” what you have at hand. It makes very little sense to talk to an investor who is too large or too small for the amount of capital you are looking for.
In conclusion, the first step to convince investors to invest in your business is to first convince yourself that your business is worth investing in; and no, I’m not talking about the power of positive thinking. Believing in yourself is important but yet, you will have to honestly access your startup to know if it has what it takes to become successful. If so then you can confidently take it to great heights.
You should know that fund raising is very competitive. On the one hand, there are few investors who will only invest in a few businesses per year while on the other hand, you have many entrepreneurs seeking funding for their business.
Seeking investors for your business can be a long, arduous, time consuming and frustrating process. However, it is essential if you want your business to see the light or grow. You should try your best to develop a powerful pitch that encapsulates your business while still being convincing.
In addition, even after gauging that your potential investors are thrilled and satisfied with your pitch or presentation, it is best to still exercise a measure of patience. Naturally, it will take some time to review your business plan and the meeting they had with you before they bring out their cheques.
Finally, you will have to be persistent when seeking for investors. Odds are that you will meet a couple of investors before you will get to the person that will say yes to you, so do not give up.