How to Persuade Investors to Fund Your Small Business
Although many investors claim they fund fewer than one percent of the deals they consider, they obviously must say “yes” to some, right? To improve your odds of getting funding for your small business, follow these simple guidelines.
Honestly Value Your Company
Investors are not easily swayed by fast-talking entrepreneurs who overvalue their fledgling companies or by naive hopefuls who believe their ideas are worth their weight in gold.
Most investors will know exactly what your company is worth. So keep it real: If your ballpark figures don’t add up correctly, you’ll never get to first base.
Ask for What You Need, Not What You Want
Any serious investor will calculate the likely costs of implementing your plans for expansion, diversification, or whatnot. Ask for too little of an investment and you’ll paint yourself as ignorant; request too much and investors will wonder what secret agenda you aim to pursue with the surplus.
Develop an accurate figure for the capital you truly need, and demonstrate your competence by sticking to it in all your investor presentations and negotiations.
Project the Future Realistically
Regardless of how great your new product or service, company growth will be difficult and take time. A company selling $1 million today is aiming to reach its next reasonable sales goal, which may be $2 million or $5 million, not $50 million. Nothing says "loser" or "rookie" to an investor as loudly and clearly as a pie-in-the-sky growth projection.
Know Your Competition
Telling investors your company has no competition does not make your pitch stronger. It makes you look foolish, because investors know you either haven't looked hard enough or aren't savvy enough to recognize who's capable of eating your lunch in the marketplace.
To some investors, claiming you have no competitors marks you as dangerously out of touch with your own business and industry.
Pitch the Right Investors
Every investor is most comfortable placing a certain amount of money in companies of a certain size. You’ll get the most traction by pitching investors who are ready, willing, and able to answer your pitch with a “yes.”
There’s literally no point talking with investors who are too large or too small for the capital infusion you seek. As well, they will
not be impressed by talk that "you're also talking to the big boys" or that "you're offering a chance to step up in class."
Raising money is difficult, time consuming, frustrating, and absolutely essential for many businesses that want to grow. Your best bet is to work hard at developing a powerful pitch, then stay on message as you pitch potential investors who are a good match in terms of size, as well as their range of interests and expertise.
Most importantly, do not give up too soon. Australian entrepreneur Paul Cave reportedly made more than 50 presentations to investors before uncovering any interest in his idea. He wanted to lead tourists up some 465 steps to the top of the iconic Sydney Harbour Bridge. (He also overcame more than 60 government objections to his plan.) Since 1998, Cave’s company has guided more than 2.5 million people, charging up to AU$298 per person.
Robert Moskowitz is a business writer for Intuit and is passionate about solving small business problems.