Venture capital firms, business angels, and investors are people who make money by investing in future or established businesses in exchange for a stake in the company. Finding a good investor to back your business idea can be a big help, especially if you still control most of your business, but it’s also considerably more difficult than finding a small business bank loan and other types of financing. Investors have very clear ideas about what they expect from their investment, and you will need to be able to demonstrate that your business idea has a high probability of being highly profitable. If you are preparing to raise money for your business, the following are some of the most common issues you may face:
not be prepared
This is often the worst problem a new entrepreneur can encounter when trying to sell their business idea to investors. He may know his product and have a strong feeling it’s going to work, but you’ll need numbers to back up his intuition to prove it to any investor. Investors are usually entrepreneurs and know how to recognize a great business idea and the right person to profit from that idea. They won’t put money into a business if management (meaning you) doesn’t seem prepared or doesn’t know the target market intimately. A solid business plan and the ability to sell that business plan to another entrepreneur are the key requirements for your idea to be considered. Make sure you can answer uncomfortable questions, such as citing data about your competition and showing understanding of your audience and why your product is a perfect fit for them.
Asking too much or offering too little
Investors often want a quick return on their investment, so if you’re asking for a lot of money to pitch your idea and don’t expect to be profitable for a long time, expect a tough negotiation ahead. They may offer you less money than you expected, or they may ask for a larger percentage of your business in return. Asking for a £20,000 investment in exchange for 5% of a company that isn’t going to make money the first year is just not going to work, no matter how good your idea is. An investor will think about ROI, and that means he wants to own enough of your company to make a profit on his investment. Prepare to negotiate and remember that even if your business idea is great, the investor is also taking a risk by trusting you and it is understandable that he would want something in return.
Attitude, business management skills and dress codes.
If the investor thinks you’re not really a good business person, they may be hesitant to give you financial backing, no matter how good your idea is. If you come across as a great engineer, but you can’t show that you’re also excellent at management and sales, you may be hurting your chances of getting funding, or you may find that your investor really wants to be actively involved in your business instead. instead of just letting you handle everything. Consider your meeting with investors like a job interview, and as such, try to come across as confident, professional, and good business manners.
This often means wearing professional clothing (yes, a suit, even if your business is an innovative organic farm for casual artists) and being able to talk about your product in business terms, not just its features or why it’s so good. If investors see you as too young, too casual, or too crazy, they won’t invest because they see you as risky. If you can also show your experience as an entrepreneur without lying or being too obvious, you can greatly increase your chances of success.