So you’ve outlined your business, now comes the next, often most intimidating step; finding an investor.
Finding an investor can be a fickle process, and for a good reason, since an investor is essentially betting on your success. While these potential investors might seem like inconsolable skeptics at times, there is always a means to convince them to take the chance on your business. It’s all a matter of conveying your strengths well. After all, there was something great about your business that secured your first devoted investor: You!
Here’s a few key points to focus on that will help take your proposal from a risky decision to an irresistible investment, in the eyes of your investor.
1. Show Your Market Impact
Investors make their decisions based on the market. No matter how good your business idea, if it isn’t profitable on the market, there is a good chance an investor is going to look the other way.
Unfortunately, for most startup businesses that seek investors, they haven’t had a chance to prove themselves on the market. While this can seem like a roadblock, there are ways in which you can show an investor that your business is a worthwhile investment. One method is to use comparable companies in your industry to predict how much your business could be worth once in operation. Sites like BizBuySell and BizQuest can show you the value of similar companies in your industry. Alternatively, you can use financial forecasts to show your potential profit. For instance, a startup breaking ground in a new industry will likely have a much higher value than a run of the mill startup joining a sea of others in an already well-established industry.
2. Indicate If Your Business Fills a Gap
There is a reason why companies like Airbnb, Uber, Google, and Amazon have all reached such meteoric successes; they have all satisfied a need or fixed a widespread problem. Co-Founder and CEO of startup Hyperlift, Ian Wolfman, seconded this idea of solving friction, stating on Inc.com, “I have always liked to operate where there’s a point of friction, where there’s a potential disruption that’s clear in the marketplace. From there, it’s a matter of developing solutions that mean a business model transcends nice-to-have and reaches need-to-have.” Investors are always on the lookout for businesses and ideas that disrupt markets and fulfills a widespread need. If your business solves a common problem, make it known to the investor- especially if you think they may be familiar with the problem.
3. Explain How Your Business Betters Society
Studies have shown that people will give money to a company or brand that makes people’s lives better. While this may seem similar to the previous point, it leaves more room for anticipation. A 2017 study, known as the Cone Communications CSR Study, found that 87 percent of customers will buy from a brand that solves an issue, or makes a particular stance that they view as important. Does your company have a positive effect on the environment? Do you or your product support higher morals? Social impact matters, and by supporting a cause of your own, you can increase your value to investors.
4. Demonstrate That Your Idea Stands Out From the Rest
There is a difference between a good business idea, and an idea that truly stands out from the rest. Take Netflix for instance, which jumped on the market when video rentals were done in brick and mortar stores. Netflix flipped the script by offering rental service kiosks in malls, in front of grocery stores and gas stations. They bought a plethora of patents in order to ensure that they could jump into the market and completely corner it.
Investors are looking for ideas that not only join a market but alter it entirely. You should be able to explain why customers should choose your business over the competition. If you can’t come up with a legitimate answer, there is a high chance that your investor may look to invest their money elsewhere.
5. Run the Numbers
Sure, profits are paramount, but it is also essential to show an investor that you’ve done all of your financial research. Beyond the profit potential, you should be able to show your investor a complete portfolio of all of your business’s expenses including things like the start-up costs, the market size, overhead costs, competing companies, and the required time commitment.
Having a thorough financial portfolio of your business will not only allow investors to see concrete numbers that support your enduring success, but it will also show them that you are determined to leave as little to chance as possible when it comes to your business.
Finding an investor can seem like an uphill battle, especially when investors are faced with the statistics of how likely most small businesses are to succeed. That said, we still see companies continue to break the threshold with innovation and drive, rising to unimaginable levels of success. Every investor is searching to put their money on these winning opportunities. If you can convince them that you’re on your way to the top, they’re certainly willing take the risk.