Success or failure as a start-up or small business often hinges on your ability to drum up investment. It’s true that bootstrapping with savings or help from friends and family will get you to a certain point, enabling you to build a prototype, minimum viable product (MVP) or show a proof of concept. But if you’ve got big ambitions and want to scale quickly, courting investors is likely to be the only way of achieving your objectives.
If you’ve never approached angels or VC firms before, it can be a daunting – and time-consuming – process. There are loads of potential investors out there, but knowing who to talk to and how they operate, takes patience and persistence. I’ve learned a lot of valuable the lessons the hard way, so here are some of the secrets I’ve picked up over the years.
Don’t be scared about giving equity away
A lot of founders avoid sourcing investment as they don’t like the idea of giving up a stake in their business, reducing their own share and potentially ceding power to a third party. However, these concerns have to be weighed against the benefits for the growth and profitability of your venture over the long-term. Remember, 100 per cent of nothing is still nothing!
Understand what motivates investors
With investors, preparation is everything, so that you have a good understanding of what they want to achieve before talking numbers. This all comes from doing your research, looking at what other ventures they’ve invested in and how those relationships have progressed. It’s also valuable to build a relationship with potential suitors before going in for a formal pitch, so that you can gauge what they’re looking for and tweak your approach accordingly.
Investors are generally expecting to exit between two and five years into the future so make sure you’re clear about your growth targets and exit plans. You need to show that you and your team are cognizant of investors’ expectations and will ensure the investment works for both parties. However, don’t offer something unrealistic just to get the money through the door – it’s important that you are also aligned in terms of your ambitions.
One of the best ways to catch the attention of investors is to get a referral from a mutual contact. So, if there is an angel or VC firm you’ve got your eye on, scour your contacts to see if you have any mutual connections. Another good option is to work with an accounting or consulting practice who can introduce you to their clients on a ‘no win, no fee’ basis.
Make them feel involved
Potential investors need to believe in your product or service as much as you do, which means helping them to experience it first-hand. In our case, we always give investors a detailed tour and let them work from the co-working space if they wish. If you have a physical product, let them test it out or give them a free sample – whatever it takes for them to feel part of the business and really understand how it works. This is particularly important in the case of angel investors, for whom a big part of investing is the enjoyment of being involved with start-ups. Effectively engaging with investors will lead to them becoming your brand champions; telling anyone and everyone about the new venture they’re involved with!
I’ve lost count of the number of times I’ve met useful contacts at networking events and conferences. In the case of investment, it can connect you with people and open up channels that you would never have considered otherwise. Same goes with social media, which can be invaluable for getting noticed and raising your profile with the right people.
Always ask for more than you think you need
You might feel like you need to be cautious when initially approaching investors, but in my experience the opposite is true. Sourcing investment is a significant undertaking, which will suck up a lot of your time. By overestimating how much you need, you’ll avoid having to do it again in six months and have the freedom to respond to changing market conditions and opportunities as they arise.
Don’t give up
Last but not least – persistence! You have to kiss plenty of frogs before you’ll find the right investor, so don’t be disheartened by a few rejections. Try to learn as much as possible from each experience and remember that even those who say ‘no’ could be useful contacts for the future.
Andrew Clough is founder and managing director of The Brew.