Your idea is killer. You have the next great business. No, the next great empire! Huge profits are just over the horizon. Needs will be met. Customers will be happy. Sunshine, roses, baby blue birds.
Except you need money.
No problem, right? Investors will line up at your door just as soon as they know about your killer idea. Or maybe you’ll just toss a GoFundMe link to your friends and sit back while the money rolls in.
Mm. Hmm. Good luck with that.
Landing investment is tough. And the battle actually begins long before most new entrepreneurs realize. That’s because the pitch itself is just a tiny part of the process of getting funding, and there’s a long list of preparation that needs to happen well in advance in order to increase the likelihood, or even possibility, of receiving outside funding.
For anyone with solid business potential and in need of outside funding, this post will detail the critical advance work, plus the first steps toward approaching the right funder, that will help you land investors for your new business.
Want to Learn How to Find Investors? You May Not Be Ready
Most entrepreneurs dream, at some point, of being handed a large check by an investor and sent off into the sunset to pursue their vision. The reality is, even if such an investor walked up to you today with that check, there’s a good chance your company would not be ready, and they’d walk off disappointed.
Investors expect you to have checked certain boxes before approaching them. When seeking funding, you will be asked questions to reveal whether you’ve checked these boxes and, if your answer is no, their response will be the same.
We’re here to get you ready for that fateful day, so you can walk off with a smile on your face and a check in your hand.
So, before you approach angel funds and venture capitalists, ask yourself these questions:
1. Do you have a business plan?
Yes, it sounds old school, but some things stand the test of time, and a business plan is one of them. Writing your plan shows that you’ve thought past that flash of insight in the shower when your Great Big Idea hit. It also communicates respect to everyone you approach. It says, “I’m serious. I’ve taken the time to think this through.”
If you have not created a business plan, then pick up your pen and put this on your to-do list right now. We’ve got a great article here on exactly how to do it.
In working through the steps of creating a plan, you’ll gain more knowledge and understanding of the industry you are setting out to conquer. During that initial research phase, you will establish or expand your awareness of who is already in the niche you wish to enter. In determining the purpose of your plan and business, you’ll also form a filter through which distractions can be robbed of their ability to waste your time and attention.
A potential startup business investor will see that you have carefully considered not only where your idea is today, but where it could be in the future and how it can overcome potential obstacles.
In writing your company profile, you’ll gain an ability to describe your purpose and product in a succinct, effective manner. When you create the marketing plan portion of the business plan, you’ll take into account the potential audience and what their habits are today—what media they consume, where they live, what disposable income they can access to purchase your product, etc.
Remember when writing your plan to leave room for adaptability, as you may be sending the finished product to an investor, to a bank, or even a potential business partner.
And, finally, take time in the plan to communicate why you are passionate about this particular idea. Let people know why you care about this and you might just find others who care as well.
SIDE NOTE: If you discover while writing the business plan that your Great Big Idea is more Typical Tiny Thought, then take heart. You’re in the company of the greats. If you haven’t failed yet, you’re missing out on a key component of the life of an entrepreneur.
“It’s incredibly powerful and liberating to live through your worst-case scenario,” says Christina Wallace. Her first idea out of college was to create Quincy Apparel, a clothing line that ultimately failed. She’s known today for creating the BridgeUp: STEM program at the American Museum of Natural History in New York City, which received over $7 million in grant funding from Cosmopolitan’s editor-in-chief, Helen Gurley Brown.
Mark Cuban, owner of the Dallas Mavericks and Shark Tank investor, has said he was terrible in his early jobs. “I’ve learned that it doesn’t matter how many times you failed,” he said. “You only have to be right once. I tried to sell powdered milk. I was an idiot lots of times, and I learned from them all.”
2. Have you proven your concept?
Writing a business plan shows you’ve thought through your concept. Now, have you tested whether it will work in real life? Some ideas look great on paper, and that’s the only place they should ever exist.
Seasoned, serious investors will want to know that your idea works in real life. Assuming you haven’t bootstrapped a version of your business, are you passionate enough about either your idea, or making your idea work, that you’ll devote time to building a prototype or testing out the concept in some way? Can you join the likes of Steve Wozniak and turn your garage into a production space?
Keep building until it works.
The results of your testing will inform both your concept and your potential investor. Testing often uncovers flaws and loopholes in the original idea, allowing you to hone your business venture even further before bringing it up for investment consideration. It also gives you valuable data to include in the business plan. It may even uncover others who are working on a similar idea, giving you an opportunity to add business partners or at least be informed about your competition.
If your Great Big Idea is more a new how than a new what, then consider how you could prove your concept. For instance, maybe you have a better idea for how to represent musical artists and get them paid for use of their songs. Either create models on paper representing your concept or, better yet, find a handful of musical artists who will allow you to represent them in the new fashion you envision.
Allow yourself however many steps it takes to get your idea to a functioning prototype or proven concept. The process of doing so will prepare your idea for investment consideration and make you a better entrepreneur!
Skin in the Game: Existing Relationships as Finance Vehicles
Potential investors will look to see if you’ve got skin in the game—if you or your immediate network have put some money into this thing. Strangers should never be your first or even second option to consider for funding. Why should someone else believe in you with their money if you haven’t first shown belief in the idea yourself?
Jeremy Halpern, a partner at Nutter and an angel investor for many startups in the food and beverage industry, told Business.com, “When a CEO founder is at personal risk, and their success is directly tied to the success of their company, they are more apt to persist, to innovate and to adopt a run-through-brick-walls mentality.”
This does not mean you have to be a millionaire to get going. Realistically assess your personal financial situation and see if there is any way—even a small way—that you can invest in your own idea. Perhaps it needs a website and you can front the hosting and design costs for such. The extent to which you’re invested in your idea, relative to your financial situation, will be taken into consideration by outside investors. If you spend 10% of your worth on it, then you will be in a better position to ask them for 10% of their investment ability.
Once you’ve exhausted your own resources, consider whether your existing relationships with friends or family might be funding possibilities. It should be easier to convince someone who already knows you to invest in your idea than a complete stranger. People who already know you will be more forgiving during the ask, too. Be prepared to give them your business plan and answer their questions. Then hone your material with the information their inquiries and responses illuminated and thank your lucky stars that you got this preparation time before approaching strangers.
Talking to Strangers: Build Relationships First
Now that you’ve looked within your existing circle of relationships and found every penny in those couch cushions, it’s time to think about outside relationships.
But hold up, don’t get dollar signs in your eyes quite yet.
Hopefully, by working within your own relationships first, you’ve realized that there is more to an individual than the money they can bring to your project. Getting feedback from others is valuable. Being introduced to people within their own networks is a gift. Do not look past the value inherent in relationships just to pursue cash or you’ll rob yourself of opportunities to grow as a professional and hone your idea.
In this vein, consider approaching outside contacts first for relationships (secondarily for money). Perhaps you need a co-founder in your company, someone whose strengths complement your weaknesses. Are you strong on creative but weak on financial? Seek out a financial expert who would be willing to be a co-founder or partner with you and handle those aspects of the business. You may have to give up some ownership to get this participation, but you will also gain invaluable expertise. Secondarily, a co-founder may bring funding to the project either personally or through their network.
Maybe instead of a co-founder, you seek out professionals in your desired industry who would be willing to form an advisory council of sorts. This can be as few as three people who are willing to communicate with you and share their experiences and wisdom to help the next great thing come about in their industry. Their presence in your management structure could be the very thing that lets an investor know you are credible and investment ready.
When forming an advisory council, consider what objections potential investors might raise and then find experts who address those concerns. For instance, let’s say you want to fill a giant warehouse with trampolines and charge kids for entry. Perhaps a safety expert and a child development expert would make good members for your advisory council. Or maybe you want to create ergonomic office furniture. Approaching medical professionals or physical therapists for membership on your council would be a very wise step.
When approaching strangers, even if you already think the person will be a good advisory council member or business partner or investor, first ask for advice and then LISTEN.
Seriously! Set aside whatever goal you brought to the conversation and actually hear what the person is saying. Ask questions about the advice you are being given until you understand how you can apply it to your business concept.
Then, hear what they’re saying beneath the actual words they are saying. Are you hearing a willingness to help? Is the person conveying a genuine curiosity about you or your concept? If so, maybe you’ve found your business partner or advisor. Take a deep breath, because you are about to make an ask—not for money, but for something even more valuable: time.
If you expect to find sincere interest in your idea, be prepared to communicate exactly what your request entails. Are you asking the person to be an advisory council member? A co-founder? A business partner? What will these roles mean for the person? Will there be daily emails? Monthly meetings? Phone calls? Will the person be expected to reach out to his/her circle of influence and bring those people into the mix? Don’t assume that your expectations are the same as others who may have approached this person for help. Speak clearly, communicate succinctly what you are asking the person to do with regard to you and your project. Here’s an example:
Thanks so much for taking the time to talk to me. I know your time is valuable. You seem interested in what I’m working on, which makes me wonder if you’d consider being on an advisory council for this? It’d probably be a couple emails per week and a phone call every month or so. I would bring you questions or ideas as I develop the concept further and expect you to give feedback on those from your place of experience and expertise.
Getting in the Room With Potential Supporters
Great idea, you think. But how do I get in a room with these people in the first place? Answer: events. (And for the introverts reading this, keep going, there’s an option for you, too.)
Create an Event
If you have completed a business plan and exhausted your immediate circle of relationships, then you might be ready to create an event yourself to help build out your core team (either through adding partners or creating an advisory council). To conduct a successful event, you’ll need event planning skills, finances to fund the event, and a large enough network of potential startup business investors to invite.
Don’t fret. Most entrepreneurs do not have all of the elements necessary to create a successful event on their own. For this reason, and others, entrepreneurs can turn to an accelerator.
Tim Cartwright, founder of the Tamiami Angel Fund, encourages entrepreneurs to think along these lines. “An accelerator can be approached with an idea or concept and will provide you with the curriculum to create the business plan, build community with other entrepreneurs, and create a demo day for investors,” he says. By the time your demo day arrives, you will have not only accomplished the steps described herein but also had the benefit of completing them alongside others on a similar journey.
Attend an Event
A few words of caution before you run out and register for a conference: Do not waste all your time at networking events. You could spend every week in a different city at a different trade show or conference. It’s easy to go overboard here. Don’t.
Be certain you’ve addressed the first elements covered here before going to events. Sure, you’re excited and cannot wait to get out there and see all those eyes widen and backs straighten when people learn of your Great Big Idea. Wait anyway. Do the first steps. Wide eyes and straight backs don’t hand over checks if the person talking is all talk.
When you’re ready to attend networking events, be strategic in choosing which are worth your time and money. Research is at your fingertips. Determine whether WebSummit, Money2020, TechCrunch Disrupt, SXSW, Collision, or other conferences are the gatherings best suited to receive your ideas.
Preparing to Make the Ask
By this point, you have asked yourself the questions a potential investor will bring up. You’ve created a business plan, tested out your idea, bootstrapped as much as possible, and built relationships. You’ve identified a need in the marketplace, built a solution for that need, and seen your solution begin to gain traction.
You, my friend, are finally ready to do that thing that made you click on this article: ask an investor for money. Yes! Because you already identified (in your business plan), the specific amounts you need and what those specific amounts will allow you to accomplish, you know exactly how much to raise.
Now multiply it by two.
“It will take twice as long to raise the money you need as you hope,” Cartwright advises, “and you’ll probably need twice as much as you think.”
You’ve put in an enormous amount of work to get to this point. Now is not the time to lower numbers and hope that makes you more attractive to investors. Know what you need, and then add margin for error. Educated investors expect such.
At this stage, if you have been networking and attending conferences while preparing yourself, it’s highly likely you have already been connected with several investors. Networking is one of the easiest ways to find people who are willing to invest capital in your business. If not, you can always google and go in cold.
Find out the names of the people involved in the funds you’re approaching and then research those people. Investors will absolutely be performing due diligence on you. It’s perfectly acceptable to do your own due diligence on them. After all, you’ve worked hard to create an attractive investment vehicle. Ask if they have invested in projects before that achieved success. If the person fails to list even one success story, you have some information to pause and consider.
A Parting Thought on Finding Investors
What will set you above all those other entrepreneurs approaching angel funds and venture capitalists? That’s different for each one. Some prefer to fund specific phases in a business’s life, others are targeted toward a specific industry or niche.
One thing, though, is important to nearly all of them: “Sell painkillers, not vitamins,” Cartwright says.
Vitamins are good for us, but we forget to take them.
Nobody forgets to take a painkiller.
And investors know it.
Which parts of the fundraising process seem the most daunting to you? Let us know in the comments below and I’ll offer any advice I can!