An investor’s View of what Investors look for when pitched to, by a company or individual.
What do investors desire? As an investor, do I seek fresh concepts/ideas so I can start my own businesses?, or Am I seeking evidence from you that your idea will succeed?
What should a new business owner, company or entrepreneur present to me in other to receive funding?
I got the idea of this post from my dad, he’s been investing in startups and companies for the past 8 years now.
If you have watched hundreds of episodes of Shark Tank and Dragon’s Den, then you should know that you don’t stand a chance to get me to invest in you or your company if you don’t know your firm inside-out and if you don’t appear to be capable of operating it without the need for continual supervision.
We Investors are exactly what that name implies: investors. When people need assistance starting and expanding their business, they turn to us (The investors with deep pockets). Yes we are in charge of security and PR, and yes, we are the stepping stone.
However, we aren’t here to manage your company on your behalf (except if its stated in the agreement). That is what you are expected to be doing, and your coworkers and partners are expected to assist you.
People are frequently unaware of the reasons behind their thoughts and feelings, such as why they are angry or happy, as they are largely controlled by their subconscious.
Numerous factors, including our environment and surroundings, past experiences, education, our memories, values, attitudes, previous decisions, and beliefs, all have an impact on this.
Everything we take in every second of our lives gets sub-consciously evaluated against them.
Everyone is different, therefore even if you believe something to be right because your subconscious tells you it is, it might not be the case for someone else.
It’s all in your head; it was just your evaluation and projection. The good news is that your subconscious mind is merely an order taker and will only carry out your instructions.
It’s a good idea to understand how your potential investors think’ if you want to attract their investment. As an investor, I receive nothing less than ten investment opportunities each week, but I only invest in 1% of those companies. Why?
I am aware that, based on statistics, about 95% of my investment portfolio will lose money. So, understandably, I am focused on finding the elusive 5% of investments that will give me a profitable exit and offset the losses incurred on the rest.
Your problem as a business owner is how to persuade me that your company may be one of that profitable 5 %.
While every investor will have different needs and are seeking for something that fits with their individual interests and hobbies, there are a few things we have in common that you should take into account if you want to have a chance of receiving funding from us.
1: THE RIGHT INDUSTRY
“What’s comfortable to me is familiarity.” – Marc Jacobs
We like to invest in companies and sectors that we are familiar with. If you are a business owner it’s advisable to target your pitch and cultivate relationships with investors that are interested in your business for this reason.
I frequently provide consultation and sit on various company boards, As a result, I don’t have much time to learn or network in a new field.
I expect to receive investment pitches similar to my field of interest and portfolio of companies. As a business owner, you should always do research on your potential Investors, just to be sure that they are interested in investing in your type of company.
The Right Fit
As a business owner, you want investors who are a good fit for your company, As an investor I want the same thing too, just in reverse: companies that are a good fit for my investment portfolio.
The simplest method to tell if an investor will be a good fit for your firm is to examine their prior investments and see if there is any symmetry.
Relevance And The X-Factor
Like I said earlier, I always prefer to invest in businesses that I can relate to or understand.
So, 99% of the time, I consider investing in businesses or startups that align with my niche or areas of expertise.
Additionally, there’s a certain “x-factor” involved, this is a process where I need to feel connected with a business owner, there’s sometimes a particular chemistry that piques my interest and leads me to invest in a business.
Personalize Your Pitch.
As a business owner your pitch should feel personal to an investor, I need to feel that this business or company is created just for me to invest in it.
This are one of the reasons why you need to do your research on possible investors before pitching them, you need to make sure your business alines with their interest.
In order to customize your pitch to an investor’s preferences, you must ultimately comprehend their priorities. Choose the best angle to pitch your project to investors in order to attract them. For instance, I frequently contribute to environmental projects, this is enough to tell you that I will be very interested in learning about your company’s sustainability initiatives. By focusing on these areas, you have succeeded in getting my attention, which just increases your chance of getting my investment.
2: YOU AND YOUR TEAM
“It really takes likable superstars to get the attention of the masses.” – Jennifer Wyatt
I don’t know if anyone told you this, but I believe that every investors like me is always interested in a business owner and his/her team. Once I’m interested in you business idea or in investing in your company, the next thing I look at is you and your team.
Are you and you team the kind of person or personality people will want to work with?
A great example of this is the story of Reddit’s launch. In 2004, Alexis Ohanian and Steve Huffman pitched their idea for a restaurant takeout app to Y Combinator but were rejected. However, Paul Graham later recognized their potential and encouraged them to create “the front page of the internet.” Within three weeks, Reddit was born and later sold for millions. This highlights the importance of being a person an investor can see themselves working with.
According to venture capitalist Paul Suster, the management team is vital. He personally places 70% importance on management and 30% on the product. If he doubts the CEO’s capabilities, he is unlikely to invest. This is why as an investor, I’ll recommends making your bio slide the first in your pitch deck to showcase the management team’s qualifications and experience. This is your chance to pique my interest and make me lean towards your idea for the rest of the pitch.
Passion And Commitment From The Start-Up Owner
An entrepreneur should have more than just enthusiasm for their business concept. They must be devoted and persistent in their efforts. If I’m investing with you or your company, I’m not just betting on the business; I’m also betting on the business owner. If I’m offering you my money, contacts and expertise, I expect to see a devoted and committed person is going to be incharge.
You Have A Credible Team And Board Of Advisors That Can Make The Business A Success.
During the early stages of your entrepreneurial journey, you may have a small team working alongside you. Investors understand this, however, we also want to see that you have the right individuals onboard to navigate the various stages of growth successfully.
Having access to advisors who can provide valuable guidance is crucial, as it shows me that reputable professionals believe in your idea too. Although I’ll most likely scrutinize the expertise and experience each team member brings to the table, and how you plan to fill any talent gaps left. While you don’t need to have a complete team from the outset, I want to see that you have a concrete plan and a reliable workforce to drive the business through each stage of growth and development.
3: MARKET SHARE AND A COMPETITIVE ADVANTAGE
“We don’t have a monopoly. We have market share. There’s a difference.” – Steve Ballmer
So, what’s the next thing I consider before investing? Your idea – specifically, whether it has a substantial market share and can compete effectively within that market. Market size is a crucial factor – if your idea is only worth a small share of the market, I will likely back-out. However, if there is the potential for significant profits, then I will likely reconsider.
However, a large market share alone is not enough. You must also have a competitive advantage within that market. What sets you apart and makes it challenging for others to surpass you? What is your “unfair advantage” or unique selling point? I expect to see a solid business model or plan that demonstrates where you stand relative to your competitors. Understanding your competitors is a good place to start.
Market Opportunity (You’re Operating In A Large Enough Market To Meet With Your Financial Goals)
Investing in start-ups can be challenging given the high failure rate among new companies. In other to attract my investment, it is crucial for you as a business owner to demonstrate the size of the target market and the potential number of customers. Inadequate market size projections will make me loose interest, since I’m obviously looking for a profitable return on investment. It’s important to remember that the success of the company depends on its long-term sustainability.
To determine the market size, you need credible sources such as statistics, competitive intelligence, data mining, and market research. This helps me validate your projected market size and boost my confidence in your business plan. I sometime always look for business that showcase potentials. I like to see the forecast of potential growth over a three to five year period. I want to see evidence of a large potential market that can drive profits and provide a satisfactory return on my investment.
Social Proof
Many entrepreneurs are so focused on pitching their ideas to us that they forget to seek feedback from their customers. As Paul Judge, founder and CTO of Purewire, points out, he often encounters pitches where the entrepreneurs have no idea what their customers think about the product. This raises the question, why do you think you need investments before getting customer feedback?
While having confidence in your idea is important as an entrepreneur or business owner, it’s still not enough to convince me, I need Social proof or evidence that knowledgeable people believe in your vision and can attest to the merits of your business. This is also a crucial factor in attracting my investment in a business.
Unfortunately, social proof is often overlooked in many business plans and presentations. To establish social proof, one approach is to assemble a team of respected advisors who can vouch for your vision. Another method is to generate early interest from pilot customers who can provide testimonials indicating that they not only believe in the product but would also purchase it if it were available. In summary, seeking customer feedback and building social proof are critical steps for entrepreneurs to take before pitching to a business idea to me, to increase their chances of securing an investment.
4: TRACTION
“No way of thinking or doing, however ancient, can be trusted without proof.” – Henry David Thoreau
Having some traction is another excellent method to catch an investor’s eye since it shows that you have the drive to see your ideas through and it provides a sense of where you might be going. Investors will likely begin to wonder what you are capable of if you have access to much more money. if I see that you can do what you have done with a small amount of funding, then I’m sure you will blow my mind if I invest a huge sum. Traction reduces risk for investors. It’s an opportunity to demonstrate your abilities and performance. You may assemble a strong management team, start generating revenue, create an advisory board, or forge key alliances to show that you have traction. Without some traction, it will be difficult to convince me as an investor to invest in your business.
Unique And Viable Business Plan
When founders present a start-up proposal to an investor, it should sound like a business strategy rather than just a concept. It must be a workable concept that is implementable. The business proposal ought to offer something fresh and original. Anything that offers a resolution to a problem should qualify.
5: CASH FLOW AND A FINANCIAL PLAN
“Never spend your money before you have it.” – Thomas Jefferson
Money is a crucial aspect of every investment, and it’s essential that any business I’m investing in has the potential to generate profits. As a business owner your business plan should include financial projections that show your ability to generate revenue and control expenses. This is crucial for every investor, no investor wants his/her money to go down the drain.
As a business owner, the most critical component of your business plan is the cash flow plan, which details the money coming into and going out of your business. You should aim to cover your expenses without relying on an investor’s funds.
As an investor, I want to see a good return on my investment, and your financial projections should demonstrate how long it will take for you to become profitable and for me to recoup my investment. This is where the exit strategy comes into play. An exit strategy outlines how investors can get their money back, and it could involve planning for an initial public offering (IPO), a strategic acquisition, or a management buyout.
You should expect investors to scrutinize this aspect of your business plan, so be thorough and comprehensive in your planning. By demonstrating your ability to generate profits and provide an exit strategy, you’ll increase your chances of securing investment. I’m most likely ready to invest if this steps looks good.
Your Business Plan Correlates With The Financial Resources You’ve Assigned To Execute It.
As an Investor, I want to know that you have thoroughly examined every aspect of your plan and allocated the funds necessary to carry it out. You will immediately lose credibility and my interest if you haven’t. In your business plan, you should carefully lay out the financing you believe is necessary and your plans for using it. I want to ensure that the business plan is viable and that it makes sense from a commercial standpoint. You should be prepared to respond to all my inquiries, defend your assertions, and provide evidence for the venture’s viability.
STEPS TO THINK LIKE AN INVESTOR TO STAND OUT FROM THE CROWD, PITCH WITH CONFIDENCE, AND SECURE FUND YOUR BUSINESS/ORGANIZATION.
No matter how socially conscious a company is, money is its essential lifeline. Startup investment enables businesses to expand and have a greater social effect by enabling them to recruit workers, buy equipment, conduct research, and develop novel product offers. The main topic of this chapter is how to approach fundraising for your company or startup by adopting an investor’s mindset. Each journey begins with the first step. Whether it’s a $20,000 investment from an angel investor or a $5,000,000 Series A offering, the first phase is to assess where you are today and where you want to go.
- Prepare Like You Mean It
- Assess readiness
- Stand Out From The Crowd
- Communicate a clear value proposition
- Pitch With Confidence
- Know Your Key Business Metrics
- Embrace A Growth Mindset
- Close The Deal
Conclusion
You must make sure you have a thorough understanding of your company before seeking an investor. You must have a solid understanding of your consumers, your industry, and your competition in order to manage a successful firm. You may reduce company risks, uncover new opportunities and trends, as well as any potential problem areas, by looking into the data supporting the goods or services that are currently on the market. How will you know if you have a healthy market share and a competitive edge inside that market if you haven’t conducted any market research? When reviewing your pitch or company plan, investors will be looking for these two factors.
Will investors steal my idea?
Now that you have a clear understanding of what investors are looking for, it’s important to note that “ideas” are not the main focus. When pitching your business plan or idea, you cannot hide what it is you are offering. Investors need to know what your product or service does in order to make an informed decision. While you don’t have to give away all the details, if you have a patentable idea, you should make it clear what your offering does. Remember, investors are busy and don’t have time for games. If you require them to sign a confidentiality agreement before even seeing your plan, they may move on to someone else.
Let me know in the comment section if you have anything else you want to add as I said earlier. The idea of this post comes from my dad, if you want to connect with him, let me know in the comment section. see you on the next episode.
You can always hit me up on LinkedIn or Facebook if you have anything to add.