No matter where you are in your business, at some point, you may need to secure additional funds to finance your new idea or to experience growth, in which case you may consider turning to an investor for help.
However, pitching an investor requires the right approach to ensure success. Unfortunately, there is no definite formula to winning over an investor, which can be intimidating; however, the main goal is to demonstrate that you’ve fully thought through your business idea and have a practical plan that demonstrates your potential for success.
Some ways to prepare to raise capital include:
Have a Strong Elevator Pitch
When pitching an investor, you need to be able to communicate your idea so that it is quick and easy to understand, also known as the elevator pitch.
To develop your pitch, pretend you are in an elevator on the top floor of a tall building with the investor, and you have just until you reach the bottom floor to interest them in your idea.
Is your presentation clear and concise enough to capture their attention and get them to ask more questions about it?
You should also stick to just one idea, which should be the best idea you have; otherwise, it can be overwhelming and signal a lack of focus on investors, which can be off-putting.
Understand Your Market to Raise Capital
Understanding the exact problem your idea solves is just as important as your pitch to raise capital.
In fact, if your idea fails to solve a problem, or it’s not anything that people are interested in, nobody will purchase it, which means your business will close.
Therefore, understand what problem your idea solves that wasn’t currently being met until you came along, and then, like your elevator pitch, work on explaining it as quickly and in as much detail as possible.
Know Your Investor
Every investor has their own motivations or needs to solve a pain or problem in their industry. Therefore, you need to know what inspires your particular investor before meeting with them to increase the chance of a successful encounter.
This will also help you organize your presentation to gain their focus, keep them attentive, and get them excited.
You should also learn what makes your investor tick, as well as how they want to be approached. For instance, some investors work by recommendations or referrals only; hence, to approach them any other way may result in a lost opportunity, as well as ruin your reputation with other investors.
Identify What You Need
When determining the value of your idea or product, use your company’s potential or the past performance of similar products to avoid requesting too much, which can cause investors to pass on the idea because it’s too expensive.
Prepare Your Documents
Your investor will also most likely want to see any supporting documents. Therefore, be sure to have all documentation of your facts, projections, and assumptions neat and ready.
This also includes a business plan. Even if the investor doesn’t ask for one, the process of writing it will help prepare you for any questions the investor may have.
Be sure your business plan includes a business model, detailed information on your target market, financial projections and assumptions, and the team’s background and experience.
Continue Building Your Experience and Industry Knowledge
Being familiar with the business sector and having experience in the related area of your idea shows investors that you take the industry seriously and want to do your part to help enhance it.
It also shows that you have knowledge relevant to potential customers, which helps display your idea as marketable.
Just as important, you will need to build a team with the proper credentials, as well as the discipline to complete their duties and meet deadlines, which investors will also want to see.
Your team should also be able to demonstrate that they work well together to follow through on objectives. Otherwise, investors may feel uncomfortable backing your idea if they see your cofounders or colleagues unable to collaborate.
Work on Getting Other Investors
Getting other people invested in your idea serves as evidence to investors that the concept or product is also backed and supported by others, which will make them more likely to want to invest too.
This is especially important if your idea is completely new because investors will want to stick to proven industries and technology; therefore, they will want to see how it is perceived or being put to use by others as proof of its potential.
So, continue to shop with other investors, such as your family and friends, or you may even consider starting a crowdfunding campaign, to exhibit others’ belief in your idea.
Perfect Your Marketing Strategy
If your business idea involves a product, you will need to show investors how you will increase sales and gain an advantage in the market. Therefore, go over your marketing goals and then develop a marketing plan, so investors can see how you will promote your product and generate revenue.
Some investors will also want to see some form of a working prototype, as well as a few customers using the product, to convince them that your product can actually function.
Work on Your Attitude
When pitching investors, if you are not willing to listen to their feedback or you become defensive when they offer suggestions for improving your idea, it sends a message to them that they can’t work with you to raise capital. Hence, chances are, they will not want to invest in your idea.
Therefore, as you prepare to raise capital, work on your attitude to ensure you can handle constructive criticism as well as rejection properly. In fact, keep in mind that many investors are still watching even after they said no.
Furthermore, investors will also need to be able to trust your character, as well as your judgment and leadership skills; therefore, they may also visit your social media or other online platforms to gain a better perspective of you.
For a free template to create a preparing to raise capital checklist, click here.