Do you have a brilliant idea but lack finance to pursue it? If YES, here is a guide on how to find, approach and pitch investors successfully in under 2 minutes.
Whether you have big dreams or small dreams of starting or expanding your business, the right investment funds is key to making it happen and knowing where to look not only serves as an added advantage but makes all the difference as well. As at 2010, small businesses in the United States accounted for 44% of the private payroll. This just goes to show that irrespective of the harsh business environment, some small businesses still spring up, survive and thrive.
Is Running After Investors Really Worth It?
Starting a business can be one very challenging venture for any entrepreneur because not only must you brainstorm and generate the perfect business idea, conduct a thorough market research and get a catchy name for your business; you also have to source for investors and convince them of why they should invest in your business, and the only way you can get the interest of an investor is to ensure that you do not waste their time with a long boring pitch but that you are able to talk about your business in not only an interesting way but under two minutes as well.
The truth about sourcing for start-up capital especially for most entrepreneurs starting a business newly is that your savings will definitely not take you far and you might also get little or no financial support from your friends and family members.
Also, most banks rarely like supporting new ventures because of how risky it usually is and so they will rather loan money to businesses that have been tried and tested. Sourcing for capital is therefore usually quite frustrating and challenging for every entrepreneur, leading some to abandon their business ideas altogether.
Having two minutes to pitch your idea to an investor or investors might seem like a short time but no investor expects to know all the details about your business in two minutes, all they need to know are the important details which will show that you have carried out proper research on the business. Once an investor is convinced about your two minutes pitch, they can then request to see a business plan which will enable them know more about the business they are looking to invest in.
If your idea of starting any business is to have it easy, then the entrepreneurial life is not cut out for you. Part of being an entrepreneur is to face and overcome challenges as they crop up. Sourcing for startup capital is one of the challenges that you should prepare for especially if you might have only two minutes to convince an investor of the viability of your business.
How to Identify and Find Investors
In the USA, a lot of potential investors are available for small businesses to choose from. They include:
- Angel Investors
They are also known as private investors, angel funder or a business angel. They are opulent individuals who are willing to invest in private businesses or startups with the aim of making profits or/and owning a part of the business.
An angel investor will invest in a business either individually, through groups or through networks. Many angel investors are current or former business owners and as such they are more hands on. They will want to have a say in the major decisions and also provide advice because of their wealth of experience.
Angel investors also have a tendency to invest in certain businesses so try and find out previous investments they have made as this will inform your decisions when making a choice of a potential angel investor. Angel investors can be found through any of the following ways.
- Online platforms: these are websites that present small businesses in need of investments. The prospective investor simply goes through the portal and identifies businesses that they will like to fund. These online platforms include Angelsoft, Keiretu Forum, and New England Network etc.
- Angel groups: these are organizations that are made up of individuals who pool their resources together to invest in businesses. According to the ACA (Angel Capital Association), there are over 250 angel groups in the United States of America alone. The ACA website provides a listing of all the angel groups in the United States. You can go to their website and submit a request to any of them.
- Individual angels: these are angel investors who neither belong to angel groups nor peruse any online platform seeking for whom to fund. A recent study indicates that there are about 150,000 active angel investors in the United States.
Finding individual angel investors is usually more difficult than finding them through groups or online platforms. You can approach someone who has a connection to an angel investor and ask for him/her to introduce you to the angel investor.
Lawyers and accountants who work with companies, venture capitalists, incubators and of course angel investors in your location can be of great help. A simple search of the term “angel investors” on linkedin.com will generate thousands of potential angel investors. Furthermore, Angelist (a website) matches entrepreneurs to investors. There are over 25,000 investors available on their website.
Once an entrepreneur has made his choice of a potential investor, he can then network and introduce himself to the said investor.
It should be noted that most angel investors are only interested in local investments. They want to invest in businesses that they can see, mentor and monitor. So, sending out an email blast to angel investors far away may just be an exercise in futility. Also having a rapport with an angel investor or going through someone is an added advantage as angel investors invest in not only ideas but the people behind them.
- Venture Capitalists (VC)
These are usually professional public or private firms who provide funds to businesses with high growth potentials but with high risk tendency. The funds they provide are usually for businesses that are already up and running but need more money for expansion.
Venture capitalists prefer to invest in businesses with already existing track records and as such startups are hardly ever favored by venture capitalists.
First, you have to carry out extensive research to find out venture capitalists in your region or close to you that are willing to invest in your business, willing to invest the amount you have in mind and at the stage of development of your business. More often than not, the specification of businesses that they are willing to fund is available on their website. This is to save you the stress of trying to contact them if they are not into your area of specialization.
The website of the National Venture Capitalists Association offers general information about venture capitalists and a list of venture capitalists that are based in your locality. In addition, they also provide advice and statistics about venture capitalists. Alternatively, you can also use a search engine to search “venture capitalist [your location/business type]. When you get the information you seek from their website, then send them a mail.
- Family and Friends
Friends and relatives who are well to do can constitute a viable source of investors for your business. They know, believe in you and see your determination and are more likely to easily support your endeavors if they have the wherewithal. Even though an informal relationship is likely to exist between you and friends and relations, their investments should be viewed through a business prism; that is, the investment will be treated like that of any investor.
Friends and relations are more likely to offer flexibility than a normal investor. For example, they may be willing to be paid with the goods and services you produce instead of in monetary terms.Also, you can ask them for a loan instead of asking them to invest. If they offer you a loan, you won’t have to share the ownership of your business with them. Furthermore, if the business fails, declaring bankruptcy will wipe away the loan.
- Business Capital Brokers
These have and maintain networks of people who are willing to invest in businesses. A capital broker is supposed to link you to a suitable investor. You can search and find a capital broker on the internet or by asking businesses who have used their services in the past to give you their contacts.
5. Small Business Administration (SBA)
In the United States, Small Business Administration is usually the first point of call for small business owners who need capital. SBA is a government venture that makes capital available through the Small Business Investment Company (SBIC) program. SBIC’s are private investment funds which are licensed and regulated by the SBA that offer investments to small businesses.
The SBA can help small businesses find investors through the SBIC. Each SBIC is a private entity and as such they are profit oriented when making their investment decisions. The SBA website contains a directory of all SBIC’s in the United States who is willing to invest in small businesses. The list contains over 300 companies and more than 21 billion of capital has been channeled through this program to over 6,400 small businesses.
Steps on How to Approach Investors and Pitch Your Business idea Under 2 Minutes
Step 1: Know the Exact Amount You Want
When you have identified potential investors, the next stage is the presentation. Prior to the presentation, you should make extensive research and cover all the basics.
Firstly, you would have to know the exact amount that you want. Do you need a small amount or a large amount and would you need more than one investor? Since most investors won’t offer you a loan but would rather want a share of ownership, you would have to decide the amount of equity you are willing to give up.
Step 2: Get a Business Plan
Irrespective of if you are a new or pre-existing business, potential investors would demand to see your business plan. Your business plan should contain what your business is about/has to offer, goals you intend to achieve, how you intend to achieve them, who your potential customers are, strategies to entice them and financial projections for the next five years etc.
Information on your business plan should be accurate and realistic and all predictions should be backed up with concrete market research. If you have an already existing business plan, you would have to update it so that it will be current.
Step 3: Research Your Investors
Before you can approach any investor to pitch your idea to them, it is vital that you first know about your investors especially the type of business they like to invest in. Most investors are looking to invest only in a particular industry so knowing the type of business your potential investor prefers could save your time and energy. You should find out about their previous investments as that that will give you an idea of what they are into.
Aside from knowing the kind of business they like to invest in, you should also have an idea of their personality as well. Knowing all these will enable you package yourself and your business idea so as to know how to approach them and get their attention.
Step 4: Identify Your Market Opportunity
Many entrepreneurs make the mistake of talking about how they intend to solve a problem and then lose the attention of the investor. This is because no matter how much problem you might think your business is solving, if there is no market opportunity for it, you are likely not going to get anyone to invest in your business. So, in essence, what is unique about your business to the extent that investors will be interested enough to listen to your pitch?
Step 5: Ask for a Meeting
When you are satisfied that you have made the necessary preparations, the next thing to do is to ask for a meeting. If you were recommended by someone the investor knows, mention the person’s name when you email or call. You can also send an email to the person who recommended you and tell him/her to help you to forward it to the investor. Your email should be detailed and should contain what your business is about, age of your business, investors you have worked with previously, dates you would be willing to meet etc.
Step 6: Make the Pitch
When the investor has given you the chance to meet, you would have to give a memorable pitch. You will need to make a PowerPoint presentation or provide a booklet for the investor to see. Alternatively, some investors may just want a one-on-one talk. If you produce physical products, you should bring them along, if it is a service, a short video or slide that shows how your service works will do the trick.
When presenting, you should exude confidence but not arrogance. Make eye contact and don’t fidget. Furthermore, your pitch should be succinct. Do not bore the investor with an extremely long pitch. You have to practice beforehand and present your pitch in such a way that it does not exceed 20 minutes at most.
Typically, an investor will still research what you have presented so it will be in your best interest not to lie or exaggerate facts. When making the pitch, if you don’t know the answer to a question just say so rather than lie. During the presentation, ask the investor for advice and also ask intelligent questions. Don’t just make the whole pitch a give-me-money exercise.
In the event that your pitch is rejected by the investor, don’t be a sore loser. Be professional in your response and thank the investor for his time. An investor who says no may still be willing to invest in the future so don’t burn bridges yet. If you get rejected, don’t give up until you find the right investor.
Step 7: Stick to Only Essential Elements
You have two minutes to convince investors about your business and to also convince them to give you the money you need. So stick to the interesting essentials; talk first about the amount you need, what your business does, your core strategy, who your competitors are and what makes you different from them.
Investors also want to know that you have invested something in your business, which shows them how serious and committed you are to the business, so it is important to also state how much you have invested, what revenue you have generated or intend to generate, as well as the milestones that you have completed. Also let them know what milestones you are looking to complete in future, who your team members are and what level of competence they have.
Step 8: How You Intend To Make Money
It is important that investors know how you intend to make money as this will make them assured enough to want to invest in your business. This means that even though you have identified your market opportunity and known who your target audience are, you should also know how best to penetrate and generate revenue for your business and in essence your investors.
Step 9: Be Ready For More Questions
If you have made judicious use of your two minutes, it is likely that you are going to be asked some further questions and you should therefore be prepared for that. This means that while you must be prepared to talk about the essential elements of your business, you must also be prepared to go in-depth especially if one of the investors is looking to clarify a point or wants to know about a point you raised. Your preparedness to go deeper will let the investors know that you understand what you are on about.
5 Warning Signs to Look Out for After Pitching Investors
Even though you may be in dire need of funds, the wrong investor could end up frustrating you more. Here is a list of warning signs of investors to avoid:
- If an investor seems really excited about your idea yet he makes no commitment in the form of a term sheet or shows any other concrete means of commitment, it may just mean that it is never really going to fall through.
- Again, beware of lengthy term sheets with abstract terms. These terms could be used as an avenue to take control of your company or pull away from the investment. Get a good lawyer to look through the term sheet before the agreement is made.
- If an investor sets for you a really unrealistic goal for your company to achieve, then you should know that something is wrong.
- Some investors are in the habit of using litigation or threat of litigation to gain control of businesses after they have funded the business. They know that the owner may be low on finance to pursue a lengthy legal battle so they will most likely bend to their demands. A good research can save you from these investors.
- An investor going “AWOL” is never a good sign. They may have seemed excited at first, spent time with you and talked and talked and talked, then they vanished without a trace, leaving you to do all the chasing. Alternatively, they can promise to provide you a term sheet, yet it never comes. If this happens just move on.
Having a business idea and looking to start from the scratch can be very challenging but every entrepreneur who is not only passionate about the business he or she intends starting but has conducted a thorough research about the business will likely not feel overwhelmed. Before investors can invest in your business, they want to know that you are confident about your business and will make them a huge profit as well.
No matter what setting you would be meeting your investors, either in front of a crowd, in a closed room or an informal setting, being prepared enough to catch their attention under or at most two minutes is very vital in getting you the funds you need to start and grow your business.