When you need to raise money for your startup it can be a rigorous search, to seek out, connect, and convince investors to fund your business – and sometimes it can also become discouraging.
The “Census Bureau’s most recent Survey of Business Owners shows that only 2.7 percent of U.S. companies obtained startup financing from a venture capital firm, strategic investor, friend, or family member. Even raising external equity after the startup stage is uncommon,” according to Bloomberg Businessweek. Why? Because many startups fail, which makes early-stage startup investment risky. No one likes to throw money away. Meanwhile, due to a lack of experience pitching investors it is often the entrepreneur who may unknowingly turn- off investors.
So, how do speak the language of investors and finesse your way into solid financial backing for your startup? Here are a few tips to get you started.
Sell Yourself and Your Team
Most investors invest in you, not your business idea or product. They will evaluate your personal characteristics: your fervor and determination, whether you will be just as passionate about your startup 10 years from now, and whether you have the moxie to get through difficult growth stages. They will also consider: Are you flexible enough to make changes to your original idea or business plan? Are you mature enough to make sacrifices? Willing to work around the clock for extended periods of time? These are the kinds of things it takes to make a successful startup work – and also just a few of the things investors will evaluate.
Cover Important Questions Upfront
While it’s easy to get carried away in your investment pitch and cover every single aspect, potential outcome, or module of your startup, remember: they aren’t looking for a monologue on your startup, nor do they want a two hour presentation. Chance Burnett, CEO of Crowdfunder.com, offers a great list and blueprint of exactly what to address when you are ready to raise investment money for your startup. You don’t want to go beyond that list.
Prove You Are Ready
One of the reasons so many entrepreneurs are rejected by investors is because they apply for funding based solely upon financial need – not because they are ready to grow their business with a financial partner. Most times, what entrepreneurs communicate to investors when asking for funding out of pure financial need is: “I didn’t budget properly, so I need your capital now”, “I’m unwilling to invest everything I have in my business, so I want you to invest your money in it”, or “No one else has given me funding, so I need you to do it.” Approaching investors with a confident, mature attitude of readiness, with the perspective that it is for growth (and not for survival) can make a huge difference in the impression you make.
Exhibit Your Credibility
Investors aren’t impressed by any entrepreneur who hasn’t done his or her homework or simply doesn’t seem to know their industry well. This includes your industry, target market, revenue streams, sales, and even details such as overhead costs and administrative tasks. However, it also applies to how well you can prove your authority in an industry or niche. What could you do to earn credibility? Maybe your electronics business is working to get ISO 14001 certified, or you have 100,000 readers following your company blog on tech software, or you have a dozen great customer testimonials on your company website. The idea is to show, don’t tell, investors that you know everything about your business with methods of credibility and traction.
It is perfectly okay to highlight your best metrics early on. For example, maybemgrowth is slow, but social media engagement has sky-rocketed. Maybe you have high website traffic, but not a lot of conversions. It’s okay to emphasize the metrics that make your business look best, but don’t hide relevant risks or avoid discussing potential downfalls. You’ll be viewed as much more trustworthy if you address these things and create as much transparency as possible. Remember, investors are persuaded by you, not your business. Be upfront with all things, especially when it comes to asking for money, even to the point of specifying an amount. An investor’s sole service is to provide financial support, so don’t start to fumble for words when it comes to asking for the money.
Consider Other Financing Options
Don’t overlook the possibility of crowdfunding to finance your startup. While it may be competitive, crowdfunding can often give you better equity on your startup, rather than having to compromise and give up control of your business for financial survival. There are plenty of crowdfunding sites that have their own dynamic, as far as what types of startups and businesses are funded, and often the more specific a problem your business solves, or the more unique it is within its industry, the more attention and support it will get via crowd-sourced funds.
This article has been edited and condensed.
Kayla Matthews is a productivity blogger with a passion for business solutions and workplace management tips. Connect with @ProductiTheory on Twitter.