Remember that time you were trying to figure out how to pitch your business? The first step here is to ask yourself the right question. A customer can only be dealt with if you have a fair grip on what they are looking for, your investor must also be approached after carefully considering what they are looking for. Every investor looks for certain factors when considering a business and the more boxes your tick, the higher the chances of scoring an investment. When you started your venture, what were your goals? Profit? Attracting new customers? Innovation in your field? Investors are businessmen too, they may have similar goals and understanding their goals is the first step here. Less than 50% of businesses make it to their fifth year, and the investors are looking to invest at the right place.
While scalability, feasibility and the future scope of a business are the obvious factors that an investor primarily takes into account, Insellers took a look at some other factors investors consider before investing in a business.
Investors are businessmen too who look for profit. Remember, unlike a loan where you have to provide collateral security, investors are betting on the financial potential of your business. Here, you have to provide hard facts to substantiate your claims. If your business has been running for sometime, showcase the profit you made and the income you were able to generate with the limited capital at your disposal. This can prove the efficiency of your management while putting available resources to optimal use, and would help the investor visualise what you could do with their investment.
If your business is at the initial stages of development and does not have numbers to show, then present your plan for the future of your company. Make sure your plan is set-out with achievable and time-constrained goals. Most investors consider the returns on their investment (ROI) and take a decision after careful analysis. If you could set out a plan whereby the cash flow is managed optimally, you are sure to land that investment. Another important detail that has to be laid out here is the exit strategy. Making business decisions requires a careful analysis of the pros and cons and the investors analyse the exit strategy because it is their contingency plan in case your company fails to meet the set standards.
A thorough analysis of the field and sector of your business would yield many facts that would govern your investors decision to bet on you. If an analysis of the market proves that your company offers nothing unique, the investors are more likely to turn you down. Your product or service must have a USP that allows you to stand apart from your competition. If your company has an advantage over your competitors, make sure to highlight that point along with numbers that point to the same. Let’s consider a popular brand as an example to illustrate this point better. When the rumoured features of Moto G Stylus hit the news, the product aroused the interest of many. Why? Because mid-range options for stylus phones were scarce and the ones that were affordable for the average customer did not offer many other sought after features. Netizens hailed Moto G Stylus as a fierce competitor for the Galaxy Note series. Now that is what we call an advantage. Your business may be small or medium sized and your USP may not be as flashy, but if you have an assured advantage over your competitors, convincing investors would become a whole lot easier.
The key here is to understand the type of investor and what he is looking for. There are different types of investors, like angel investors, venture capitalists (VC) and peer-to-peer lenders (P2P). While all these investors follow similar criteria when investing, there are some marked differences that must be considered. For instance, a venture capitalist looks for the uniqueness of your product and they are more likely to take risks. They want to invest in a niche that is underdeveloped as they can reap benefits before the sector becomes more competitive. An angel investor would also give significance to the profitability of your business and the business model you are following, but they are more likely to invest if your product is targeting a large customer base and unlike VCs they look for experienced founders to minimise risks. Peer-to-peer lenders, like Upstart, LendingClub, Peerform etc, give serious thought to your experience in the field and your credit history.
YOU and Your Team
This may not seem like an obvious factor but many investors consider this criteria relevant when choosing to invest. Most investors would like to take the position of advisors and oversee how their investment is being put to use. To work in close association with your team would require some amount of respect and compatibility. Your attitude and the behaviour of your team can also impact an investor’s decision to invest in you. Angel investors often consider the leadership and management qualities of the founders they would be working with before making their decision. Not all investors take decisions solely based on hard facts, some investors combine their rationality with their intuition. These investors could be won over by working up a chemistry with them.
The perfect pitch does not solely depend on hard facts and results, some pitches work out because the founder decided to tell the story of his company and add a personal touch to it. No two investors are the same and no matter how the trends are analysed and crunched down, you may not be able to convince some investors. However, that should not dampen your spirit. Do the research and pitch your ideas confidently, but if the investor is doubtful and wants more data or another risk analysis, do not get agitated. Tackle the questions calmly and do your best to put your investor’s doubtful mind at ease. Remember, they are also businessmen and what they need is assurance of success.