Before
approaching an Angel Investor or Venture
Capitalist take the time to do your homework.
Approaching the wrong investor or making a bad
pitch is a waste of your precious time. To
make the right approach follow the steps below.
Identify The Size of
Investment
Most venture capitalists will not
consider investments under US$1 million. Thus, angel
investors attempt to fill the gap by investing from
$25,000 to $500,000. Angels provide
financing for high-growth start-ups.
Determine The Type of
Investment
At
which stage of the business do you need
investment for. Is it in the "early
stage" or "later stage".
Angel
investors normally invest in "early stage"
businesses.
Venture Capitalists normally invest in "later
stage" businesses. They do not invest in
startups.
Identify The Industry
Find investors
with knowledge and expertise in your industry.
Investors invest in industries in
which they have experience. An investor
not only brings money to the table they also
bring their knowledge and expertise in a
particular field. That is the area in
which investors think they can make the biggest
contribution.
Do your homework and identify
only investors with knowledge and expertise in
your industry. Angel Investors and Venture
Capitalists normally have this information on
their website.
Identify Investors Close to
Your Location
Seek out
investors that are close to you. It's all
about Location....location...location.
Proximity to
your investors is critical. Investors take
a personal stake in your business and they will
meet with you frequently. Hence, they want
your business to be located close to them
(within 30 minutes) so that they can travel to
your site in a short period of time.
Be Prepared To Sell
Yourself
Be prepared to reveal everything about yourself
to your potential investors.
Investors invest in the people who are
running the business. If they don't
connect with you on a personal level and/or have
confidence in your ability to manage the
business they will not invest.
Provide references. Investors will check
references before meeting with you.
The Introduction
Investors are most likely to
turn down an unsolicited approach. Hence,
the best way to approach them is through a
quality introduction.
A quality introduction
can come from a banker, a lawyer, an accountant,
an entrepreneur with ties to investors or a
investor that you know.
Investors communicate with
each other. So, you if you have been
turned down by other investors in the past be
prepared to answer honestly when asked.
Make Initial Contact
Before you can
meet with an investor in person you have
to make initial contact. Initial contact
with an investor is normally done via telephone.
However, some investors don't mind being
approached in person. The goal of the call is to get the investor to
request a business plan.
See video on making contact with
Investors:
Developing The Business Plan
Develop the Business Plan. Don't think of
this in terms of the traditional Business Plan
that is 15-30 pages long. VC investors are
very busy people they don't have that much time
to spend on just your Business Plan. Just
simply answer the questions below and keep it
short:
- Executive
Summary
- What is the market and growth
opportunity
- Who are the people on the management team and
why are they qualified to run the enterprise
- How well has the business done so far
- What is the company's unique advantage
- How well do you expect the business to become
Be sure that your business plan answers these
questions effectively. Investors see
hundreds of business plans each year, but they
only invest in a few projects. Make yours
the one they invest in.
Making The Pitch
Making the pitch before investors is the final
opportunity you will get to convince them to
invest in your business. If you've made it
this far you have something that has their
interest.
The pitch is a formal presentation
with PowerPoint slides. Here are some do's
and don'ts during the pitch:
Do's:
- Demonstrate knowledgeable on the subject
- Speak with confidence
- Be flexible. Respond to questions and
don't put it off until you get to that slide
- It's OK to pose questions to investors
Don'ts:
- Don't be put off by criticisms
- Don't be defensive
- Don't turn down an offer because it doesn't
perfectly match what you had in mind
If you would like to see examples of how
pitches are made you can use the following
resources:
- The show on ABC called the "Shark Tank".
It airs every Friday evening at 7:00pm CST.
