Early-stage startups may choose to look into investor financing depending on the type of business they’re starting and how much funding they need. Startups intended to grow fast and expand at a global scale require large and stable cash flow, mentoring, and online buzz among other things.
Do you think that your road to success might be bumpier without reaching out to investors? Then you might be wondering how to convince them to invest in your business, given that global startup funding dropped by 23% in Q2 2022. If you have already evaluated pitching an investor is the right thing for your startup, this post is for you.
Things Investors Look for in Founders
Investors pay attention to technical skills and business knowledge because after all, they anticipate profits and business growth. They need to know you have a solid business model, which you approach professionally with a strategy and quantitative data, besides passion. Below are the business plan components you should be well prepared to present succinctly.
What makes businesses sustainable is a product-market fit. It entails two crucial factors – strong market demand and a product which satisfies it. Validating there’s a fit gives a promise to a prosperous future for your startup.
While it seems self-evident that you’re selling something people are willing to buy, it doesn’t always play out as planned. Even a seemingly great product can lack high enough demand or fails to efficiently solve a market problem. Hence, investors expect you to have a firm grasp of your target market.
There is no exact formula to measure the product-market fit, as addressing customer needs depends on the market and the problem you aim to solve. There are, however, basic tactics you can use to achieve it.
- Determine a market niche. Niche marketing translates to focus, essential to entrepreneurial success. It also typically reflects strong demand.
- Create a buyer’s persona. Show that you actually know and understand your prospective customers.
- Illustrate the uniqueness of your value proposition. Ask yourself what sets you apart from other existing solutions in the market.
Investors notice if you’re able to demonstrate a return timeline and have a clear notion of how you’re going to use and distribute the funding. You should be able to project monthly expenses as well as your own planned investment levels to showcase the estimated revenue.
A detailed timeframe justifies the required capital, and shows how you plan to use the money and if you’ll be able to be on track each month. You’re more likely to impress investors if you have a model which you use to guide your financial decisions, e.g. hire, cost management or investments for expanding your business.
The financial projections are based on your business goals using facts and data. They should answer how much and when with respect to investment and revenue.
Be prepared for the 3 main financial statements:
- The income statement: states how much money a company makes and spends over a period of time.
- The cash flow statement: reports the cash inflows and outflows over time.
- The balance sheet: provides information about a company’s assets, liability, and stakeholder’s equity at a given point.
LivePlan is an affordable business software for financial forecasting which helps you formulate and analyse the aforementioned statements.
Business traction is defined as the momentum (growing visibility) your startup gains as it grows. High traction confirms you have a marketable product and that you can attain customer validation. Basically, if your idea is feasible and your financial projections realistic, you should already be able to display the potential of your startup with concrete examples.
These could be beta testers signups, customer testimonials, social media metrics and website traffic, or connections with relevant media and influencers. Anything that shows you attract interest and serves as a proof of concept: are there people who have actively shown they’re willing to become your customers? Are you able to present a positive customer experience, exemplifying how your product or service fulfils their needs?
Demonstrate your commitment by bootstrapping your startup with the resources available and, of course, with your ambition.
Your startup’s founding team should shed light on your and co-founder’s ability to bring the right people together and form a strong team. Leaders know the range of skills their startup needs and seek out people who can complement each other. They also value emotional intelligence or possess it themselves. Balance is key. Where an employee lacks expertise, another can deliver. Not everyone needs to be an expert as long as your team members share your vision and are motivated to learn.
Diversity of skills is immensely valuable for providing varied perspectives and interpretations. It contributes to the successful execution of different activities in your startup.
If this piqued your interest about team composition, Forbes has listed a few tips to consider when forming your team.
Certain leadership traits implicate a growth mindset. Even if you know your facts and statistics, being unable to overcome obstacles can be detrimental to your startup’s success. Comprehensive knowledge of your industry can’t compensate for the lack of entrepreneurial flair, either. Investors envision you going a long way as a founder if you’re resilient, flexible, and have a sense of urgency.
As a startup founder, resilience is key. Your business journey is yet to begin, giving way to hard work, challenges, and a good deal of decision-making. No matter the circumstances, you should be able to keep striving to reach your goal. Everyone experiences stress, but resilience helps you to think of ways to deal with a problem rather than give up or take on destructive habits.
Flexible people embrace change and have the ability to adapt. Successful entrepreneurs are open to opportunities, and ready to adapt to market shifts instead of sticking to one way of doing things. Besides, you’ll likely benefit from some guidance and connections. Investors will be glad to know they’ll partner with someone cooperative and open to advice.
It’s not about words, it’s about action. Show investors that you’re not doing just the bare minimum. You’re instead ticking things off your list while adding new ones at the same time. Be proactive, aiming for results and getting the most out of each action you take. Create a sense of urgency that shows you aim high and that you approach problem-solving with a hands-on mentality.
It’s okay not to know everything yet, just as it’s okay to ask questions regarding the investment process. Transparent communication can be pleasantly surprising for both you and the investor. Who knows, perhaps your authenticity will reveal something that’s going to win them over.
In the end, if you’re passionate about your venture and put in 100% to build a realistic business plan, you have a very good chance to find the right investor for your startup.