Many entrepreneurs are continually surrounded by entrepreneurs who claim they have the following Facebook, Twitter, or Instagram. They promise to transform everything. The reality is that most of those startups will end up in obscurity.
The Center for the Development of Business Competitiveness reports that 9 out of 10 startups fail to survive in the United States. However, 75% of Mexican new businesses fail within the first two years of their existence.
Investors are familiar with the high death rates associated with new projects and measure risk. It is therefore not easy to attract them.
Before you contact an investor, these are the key points that will help to ensure that you don’t get caught off guard.
These are important questions to ask before you start looking for investment.
1. How much money and what do you require?
You need to know what you will do with the money before you approach an investor. Investors will hear your alarm if you don’t have enough information about the company’s status or plans for the future.
Jorge Gonzalez Gasque, CEO at G2 Consultores and specialist on startups, said, “If you ask a lot of money in comparison to the value your company has, then the dilution is substantial.”
Remember that investors are interested in seeing how your company grows with the investment money and what this growth means for you.
It is like going to war with no weapons when you stand before investors without any basic information about the company. You will damage your company’s reputation and lose a valuable opportunity.
2. What are your options?
It all depends on the amount you require. The type of investor you should approach will also depend on your needs. For small amounts, angel investors are recommended. You can find tiny seed mutual funds or angel syndicates for as little as $ 5 to 1 million. Venture capital is the right option for you if your investment budget exceeds $ 5 million and even 50 million. You can either look for international investment funds or a collection of local funds if you need to invest more than 50,000,000 pesos.
It also considers that investment amounts can vary, as well as the investment thesis. There are also investment funds that will only invest in technology-based businesses with a clear social purpose or ecological projects.
Knowing the investor’s profile that you are interested in approach is crucial. It will allow you to ensure that they offer you money and their experience and vision.
3. How much can you get from the investment?
To show the potential of your business, it is essential to have a business plan. Babson College’s study found that companies with a business strategy doubled their capital within the first 12 months, compared to companies without one.
Investors demand that you know the details of your potential market, how much it costs to acquire new customers, and what the most critical metrics are about the company’s health. Investors want to hear about the value you can create for your company through their investment.
Each investment has a value issue. If the objectives aren’t met, and there is insufficient traction for the company, then another round will be much harder to raise.
4. How solid is your pitch
Although a good pitch is essential, it is not enough. Investors are interested in more than just the passion you can convey. They want to know how great the business opportunity is and how solid your startup is.
While some entrepreneurs may not be great at pitching or rambling, it does not necessarily mean they lack a solid business idea. However, some great sellers will charm investors who have very little to no viable projects.
Gonzalez Gasque said, “As an investor, you care about soft skill, of course, however, technical knowledge matters more in the fundamentals and your business, if it makes sense and the numbers talk of traction, profitability, and traction,”
Pitching is subjective. While it is essential to convey empathy and communicate clearly, it is also crucial that the business be viable and has the potential to have a considerable impact.
It is also a good idea to include a proto, contracts signed with the client, growth statistics, or any other information that could convince investors that your investment project has potential.