Without any previous business experience to back you up, it can be difficult to convince an investor to fund your startup. What’s one tip you’d give first-time founders to get the interest of a potential investor, and why?
These answers are provided by Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most successful young entrepreneurs. YEC members represent nearly every industry, generate billions of dollars in revenue each year, and have created tens of thousands of jobs. Learn more at yec.co.
1. Sell Your Strengths
We all have strengths and we all have weaknesses. While someone’s weaknesses may include a lack of entrepreneurial experience, they can nonetheless successfully raise capital if they can persuade investors that they have the wherewithal to execute upon a winning business plan. Sell your idea, sell your team and sell yourself.
2. Be Transparent
Investors want to understand what risks there might be to the business as well as what the true financials and key metrics are. Concealing truths that detract from the forward momentum will backfire. Being transparent with mistakes and failures builds a trusting relationship and demonstrates self- and situational awareness as well as humility.
3. Offer a Sample Product or Data
Build a prototype or show attractive customer acquisition costs through a marketing funnel. Having a simple version of what you’re looking to build will make you a very serious entrepreneur in the investor’s eyes. If you’re able to run a marketing test to prove viability of the product, you’re showing a high potential ROI.
4. Play to Their Passions
Investors are human, and although metrics like traction or sales matter when it comes to raising funds, the passion of the investor is a big factor. Your vision can excite your investor.
Then you can ask those passionate investors to help introduce you to other investors who would most likely invest in your startup. Investors know each other, and friends convince better.
5. Search at Your Level
Find an investor who is interested in your niche and someone who is focused on funding small businesses like yours. Smaller investors may be more likely to take the risk of financing a small startup. You’ll also have a bigger chance of a partnership because you are after someone with a common denominator.
6. Keep It Short
Don’t spend a lot of time fluffing up your presentation with high-brow material. Think of your pitch as a time when you have just a minute or two to hook your investor or lose them altogether. Try to come up with as short of a presentation as you can and provide enough information to interest them. Then leave it to the investor to ask questions and then give them in-depth information.
7. Have a Proof of Concept
The best way to convince an investor to back you up is to create a compelling proof of concept. People are not going to invest in your idea just because they hear you talking about it. You have to show a tangible plan that explains how your product will make a profit and help customers.
8. Be Prepared for Questions
For first-time founders, it’s crucial to practice your pitch several times before you need to do so in front of potential investors. This ensures that you’re prepared for their questions and concerns and have answers that satisfy their needs. Otherwise, it’ll prove difficult to convince them to take you on.
9. Find Parallels Between Your Businesses
An interesting approach is to research the investor and see if you can find parallels between their businesses and your new startup. Then bring these parallels to their attention. It shows that you’ve done your research and know about them. However, it’s important that this doesn’t come across as forced or as flattery.