The idea of presenting your prospective business venture to investors may seem nerve-racking. You may even experience some trepidation and begin to ask yourself whether you truly have what it takes to turn your idea into reality. Stop here. Regain your confidence. If you follow some basic rules you will get through it successfully and probably leave a lasting impression on the potential investors.
Entrepreneurs pursue opportunities regardless of the resources currently at their disposal; however most entrepreneurs come to a point when they can no longer bootstrap, or FFF (Family, Friends, Fools) funding is no longer sufficient. Whether you're in the seed, start-up or even first-round stage, you must pay attention to several factors in order to lock down investment capital.
Draft a well-written business plan
The biggest mistake among entrepreneurs when writing a business plan is the lack of attention paid to the executive summary. Most investors spend no more than a couple minutes looking at your business plan. If you can't capture them in the first thirty seconds with your executive summary, you lost them.
The executive summary is the most important component of your business plan and serves as a capsule of the entire detailed layout of your idea. It is the attention getter, and great time should be dedicated to engineering a harmonious balance between excitement-evoking creativity and critical business perspective within the executive summary. For instance, mesh together the excitingly unique attributes of your idea with your competitive advantages and market positioning. In other words, grab the attention of your audience with your fresh idea and show them exactly why it will work.
The next most important component of your business plan is the financial section. If you have not launched your business yet then your financials will be based on projections, and these projections will be based on assumptions. They will not be precisely accurate, but make sure they're honest. Whatever you do, do not be too optimistic; it makes you look like an amateur. It's okay to show a loss on your pro forma P/L statement, but if you show unrealistic profits from the jump, and out of control sales projections, it shows a flaw in your business sense and the investor will walk away immediately. A naive sense of optimism must be deflated from the get go. It is much better to prepare for everything throughout the business plan and show that you can assess risk, from understanding all direct and indirect competition, to foreseeing internal and external threats, to addressing the weaknesses of the company.
To have a sound business plan all the way through you must do intense research, especially on the market analysis. If you don't perform your due diligence it will show when the investors begin to ask the tough questions.
Investors love IP
If you are at an Angel networking event shopping your idea to potential investors, most likely they are going to be looking for any secured intellectual property that you possess. This may not be the case with small individual investors, but you can be sure it is the case with Angels and VCs.
Obviously intellectual property has value, especially if you're entering industries like the life sciences, IT, advanced manufacturing, electronics, or telecommunications. If high-value IP is not in your company's repertoire, that's okay but it is important to secure some IP. Start with getting a trademark on your company's name and any logos or product names that you feel are important to own exclusively. Also, purchasing a domain name, copyrighting any slogans, or getting patent protection or trade secret protection for any novel inventions, formulas, or processes are other forms of adding IP to your company. There are numerous forms of intellectual property, but the extent to which you seek to file for IP depends greatly on your business and your industry.
Your character is huge
In the business world character is everything. You may have heard of the 5 C's that a loan officer assesses when deciding whether to grant someone a loan. Believe it or not, the most important factor is CHARACTER not collateral. This should be able to invoke confidence in anyone who is feeling doubtful about their chances of wooing an investor. You could have a better shot at securing an investment than someone with a ton of assets, and it happens all the time. There are several ways to ensure that you are regarded as someone with a high character value.
1. Remain professional at all times. Be confident but not cocky.
2. Articulate well and familiarize yourself with business terms, especially those dealing with financials.
3. Never say you have no competition. There is always competition of some form. Eyes will roll, heads will shake, and your credibility will be lost.
4. Never say you are marketing to everyone. Know who your target market is and understand how to effectively segment your market. Don't say everyone has a need for your product or service, and therefore you will market to everyone. It is simply not true and it shows you have no concept of the costs of marketing or the effectiveness of niche marketing.
5. Share your fruitful failures. Investors want to see that you have failed and have learned from your mistakes. It is a common misconception that one should go to extreme lengths to conceal their business mishaps. Be open about what you've learned through failures, it shows wisdom.
6. Know your limitations. Don't say you can do it all. If you have little knowledge of marketing, say you are going to hire a marketing manager. Share your weaknesses and how you plan to address them. Often times, the "jack of all trades" is actually viewed as the weakest link. Pinpoint your specializations and explain how you will compensate for your inefficiencies.
Declare an exit strategy
Investors want to know that you do indeed have an exit strategy, primarily because this is when they make their money. How to harvest the business is a question you will need to consider eventually, unless of course the business fails and then you are reduced to selling off the assets. Decide if you have plans of selling the business, or you foresee the future possibility of a merger or acquisition by another company. Investors are going to want to talk about your exit strategy, so be prepared.
Construct and master an "elevator pitch"
Every entrepreneur should make a one-page business plan beginning with a short description of the business. You should be able to describe your business idea in one paragraph, and it should be clear and concise. If you can't do it, try again. If you can't articulate in a few sentences the clear essence of your idea, then investors will rule you out immediately. They want to hear what you have, not how you got there. In other words, they want a precise snapshot of your business not a verbose aerial view.
There are three keys to remember when giving your elevator pitch: focus, clarity, and uniqueness. Memorize and perfect the elevator pitch and you will never have to worry about fumbling over words and rambling on when an investor wants to know why your idea is more special than the other twenty he's already heard that day. Keep the description focused, clear and unique and you will be the one he remembers.
The rest of your one-page business plan should consist of your vision, objectives, strategies, and action plan. These should be in bullet form and the data should be measurable, obtainable and specific. If you want investors to take a deeper more sincere look at your business idea, you must reel them in with the one-page plan. This is your mousetrap, set the bait correctly and surely the outcome will be favorable.
Master these simple rules and you should be on your way to the investment you need to take your business venture to the next level.