Most entrepreneurs share one thing in common: they are passionate about their products and company. They are enthusiastic, passionate, and optimistic. They are eager to share their ideas and products with the world. Entrepreneurs need to think about the motivations of the people who will fuel the jet engine before that can happen.
Through my many years of running startups and raising capital, I’ve learned a lot about how to find investors for small business startups and how to prepare for investor meetings. This list will help you to make sure you are able to meet with those who can write large checks if you plan on scheduling appointments. These guidelines will help secure funding and create valuable partnerships.
1. Do your homework
Make a list of potential “smart money” investors and research each prospect. Like any other sales process, raising money for your startup involves a lot of work. Gather leads, prioritize them, then run through a process using a tool like a sales funnel. You then close the deal.
Faced with a difficult fundraising task, entrepreneurs will often call upon any and all who have an “angel investor”, or “venture capitalist”, sign on the door. This is one way to go. It doesn’t seem to be very efficient. This is similar to cold calling stockbrokers from a telephone book or knocking on doors for real-estate sales.
It is far more efficient to use a business-development mentality. Qualify leads first, then work on getting warm introductions and finally work your way down the sales funnel as you work your way through your list.
My blog is filled with great information about smart money investors. These people have the domain knowledge or technical contacts to help you in your specific product area. They have the financial resources to invest in additional investments and a track record of successful investments in your industry.
It is not easy to identify “smart money investors”. However, you can do it with publicly available information and/or intel from a subscription-based company (often at a very modest cost). Once you have your list, it is important to first trust potential investors with whom you are familiar and who have credibility. If you convince one of them to invest in your project, he or she will be a great advocate for others.
If you have key prospects on your list, it is worth asking your existing contacts if they could introduce you. This type of professional networking is possible with LinkedIn and Angel’s List.
Meet with potential investors before you go. Learn as much about them as possible — their style, past successes, and worst failures. What do they know that can help you network? Smart money investors have a lot to offer more than just fluid assets. These assets can also be of immense value in helping to build the brand and influence of your company.
2. Follow a strategic planning process
This is the most important point, and I won’t go into detail. The “Essential Elements of a Fundable Startup Business” summarizes it well. It doesn’t take six months to complete the same process as you would in a large company. However, you need to be able to identify key components.
- Target market
- Market size and growth
- your unique value proposition
- Customer profile
- competitive landscape
- Your product roadmap
- Your plan for the 12, 24, and 36-months
- Your key milestones, especially in the next 18-months
Also, you should have an idea of how much money you can make. This includes your gross margins and customer acquisition costs. The total value of each customer. As well as your operating expenses over time. It’s almost impossible to raise outside capital from venture capitalists or angel investors without this knowledge.
3. Develop a business plan and financial model
Your business plan will be based on the results of your strategic planning process. A typical strategic plan projects a three-year financial forecast. It doesn’t provide a detailed view of the expenses for the next 12 months.
To truly understand your business and be able to explain it to potential investors, you need to create a monthly financial plan that covers the first 18 months. It is important to get the product right. Understanding the business side of the investment opportunities that you offer investors and clients is equally important. It is essential that you are able to clearly and concisely explain your money-making strategies.
4. Draft a set of key milestones
Your strategic-planning process should also include key milestones. Investors must have confidence in your ability to deliver results. How can investors trust that you will achieve bigger goals if you don’t have measurable goals? Or know when you have arrived at the destination you desire?
Venture capital raising in Series A takes approximately six months. It is not difficult to raise a seed round of angel investors. Entrepreneurs who are successful set short-term milestones that they can reach over the next few months. These small victories will help you build trust with your potential donors. Every milestone should be relevant and real in order to reduce risk. You should know what milestones mean and how to track your progress.
5. Build a story that encapsulates the problem your company solves
Venture capitalists can be a bit like producing a show in a small theatre. Angel investors are often the same — unless they want to dig into your product or technology, then you will have to do it together. This is a great way to launch a high-tech product with Target and connect with investors who are already well-versed in the sector. It won’t usually work with VCs. VCs are busy people that look at a lot of deals. You should show them something in the first five minutes to grab their attention.
I have been an entrepreneur and also played the investor role. Both cases have shown that compelling stories that connect with listeners’ experiences and knowledge are the best openers. When you share the pain of your target customer, you want to cause an immediate reaction. You’ll attract them by describing how your solution relieves their pain.
This is especially true for investors who are only interested in “smart money”. They will understand the context better than the average bear, and they will also see the value in solving the problem that your product or service revolves around.
6. Create an investor presentation and pitch deck
It is not just science that goes into creating a great investor presentation or a solid pitch deck. I am careful to differentiate the two. The presentation is your message and the way you present it. The pitch deck is the text and images on your slides. Both are crucial.
The pitch deck should tell your story, and then go on to explain the key features of your product and business. A few financial highlights will be included, based on a well-developed and thoroughly reviewed model. You’ll need to answer all of the questions in about 20 minutes, plus time.
My rule of thumb: My rule of thumb? Budget for 2 to 3 minutes per slide. This does not include the title slide or call to action (CTA). A pitch of 20 minutes should not exceed 10-12 slides. I have seen hundreds of investor presentations and can count the number of times that investors have kept to this number.
Entrepreneurs might wonder, “Why would I schedule a meeting for an entire hour when you are presenting for only 20 mins?”. If the meeting goes well, then you will want to use the remaining time for discussion. Q&A can take between 10 and 15 minutes if there is an engaged audience. Sometimes, you might be able to spark some conversation during your presentation.
Although this is generally a positive sign, there are those who will take perverse pleasure in trying to ruin a presentation. If the disruptor does not bring something that will make a difference, it is worth considering whether this person is a good candidate for an investor.
Let’s look at the complete timeline. For starters, let’s say everyone is five minutes late. Present your interactive pitch deck for five minutes, make introductions (another five), and then lead a lively Q&A (15 mins). Next meeting action items will be taken (five minutes). You’ll finish the meeting in five minutes if you stick to this schedule. This shows that you are organized and efficient.
Your presentation is about you. What do you do to make the slides come to life? Your high-value potential investors will be evaluating your presentation just as much as your business if you get a face-to-face meeting. Are they able to trust you? Are you a competent and knowledgeable person? What are your responses to pressure? Are you credible? Practice your presentation before you go. Don’t send the pitch deck slides before you give the actual presentation. Executive summaries are for that purpose.
7. Draft an executive summary
Your executive summary should be concise enough to grab attention and get you a face-to-face meeting. Highlight the most important facts about your company, products, and target market. The First Steps to Writing an Executive Summary for Your Business Plan will help you start with a framework.
8. Craft and practice your elevator pitch
To make your elevator pitch, use your executive summary. Imagine that you are taking an elevator ride. It could take between 30 seconds to two minutes. You will need to describe your company, your target market, your customers, and the competitive advantages your product has over other players in that elevator ride. You can work on the elevator pitch until it is perfect. Do not recite the lines. Your passion should shine through every time.
9. Create a list of FAQs, and practice them with a hostile audience
This is a critical component of investor-meeting preparation. It’s a shame because it’s one of the most important aspects of working with investors. Entropic was my company for over 11 years. We were public for seven years of that time. My team was able to prepare for earnings calls by creating FAQs that were based on difficult questions from a group of “devil’s advocates”, in-the-know people. This is equally valuable whether you are operating in a private company or a public company.
10. Iterate. And again
Get Feedback When You connect investors to entrepreneurs. Include their ideas in your pitch deck, executive summary, and business model. Learn from everyone. Even if your preparations for the first investor session were a success, you can still improve your presentation by getting input from each investor meeting.