By Mike Lebus, founder of Angel Investment Network
One of the most nerve-shredding parts of running a startup is meeting a potential investor for the first time. The emotional investment you have put into your business idea is huge, something you have potentially been mulling over for years and have finally set in motion. Yet you now need the capital to take it to the next level to scale up and ensure its viability.
Yet sitting on the other side of the table, real or virtual, is a rational decision-maker driven solely by whether they are likely to make a decent return. The next few minutes could be crucial to your chances of success and realising your dream or heading back to the drawing board.
So how do you increase your chance of getting that all-important investment? There are five key tips I would recommend to increase your chances of winning the backing of early-stage investors.
Make sure you are investment ready
The first piece of advice may seem blindingly obvious but the vast majority of startups who seek funding are simply not at this stage and sadly don’t realise it. This leads to an enormous amount of wasted time and effort (and ultimately disappointment) for everyone.
Angel investors are willing to back early-stage companies, but they need to believe in the founders’ ability to realise the vision and in the market opportunity. So before you even get to the stage of meeting an investor, ask yourself the following questions: Is your startup at a stage where investors will see something they want to invest in? Do you/members of your founding team have direct, relevant industry experience? And crucially do you have some proof of customer adoption or other clear evidence of traction? If you can answer these questions affirmatively, you are ready to raise money. If not you should focus on bootstrapping your business further until investors might be willing to back it.
Prepare your pitch deck
A pitch deck is a vital tool in your armoury and one of the key documents any early-stage investor will assess to make an investment decision. At AIN we have seen thousands of decks, so we can tell the good ones from the bad ones!
Of course, there are different ways to lay out a deck visually, but a good pitch should put across the same three-part message: 1) There is a market opportunity, and we have a product/service that fits this opportunity. 2) Here is some proof of our excellent product. This is the brilliant team behind this concept. 3) Our ideas are working but we need money for X, Y and Z. If you broadly follow that structure you will be presenting all the information an investor needs to make an informed decision.
However, you would be surprised by how few entrepreneurs actually lay their information out in this fashion. They are reducing their chances of winning investments by failing to adhere to the preferred structure of their target audience, the investor. You also need to make sure your pitch deck is clear (avoid jargon) and visually appealing.
Practice makes perfect
Being investment-ready means being able to succinctly deliver your pitch to seasoned investors who are potentially seeing hundreds of pitches per year. No amount of rehearsing can substitute for being in front of actual investors, but of course, you want to be absolutely ready for the most relevant on your target list.
One technique is to draw up a list of ideal investors and then reverse the order. You are therefore saving the most relevant for later and you should be better prepared by the time you reach them! You should also think through all the questions an investor would be likely to ask and have answers ready (and keep updating your list as new questions arise).
Don’t lose sight of the bigger picture
When thinking of all the crucial components of a pitch process with an investor, don’t lose sight of the bigger picture. You may have a detailed and granular understanding of your business and sector, but the investor won’t. Early-stage investors will be wooed by a clear narrative on the solution your startup provides and why people will pay for it.
So make sure you can communicate what you are building and the problem it solves very succinctly. If investors don’t understand what you are aiming to achieve, why would they back it financially?
Be patient and persistent
Programmes like Dragon’s Den make you think investment decisions come quickly. If you send an investor an email and don’t hear back from them, don’t be afraid to keep following up. Even when you have a meeting you then need to show the persistence to build on the relationship to get them to eventually back the business. Investors like to see a bit of “hustle” and each step of the process is about getting to the next step.
However, while it’s important to be persistent, it’s important not to be so aggressive that investors are put off. You need to start softly, softly. Down the line, once the investor has said they are interested, you can start to talk numbers. It’s a long term relationship after all. You wouldn’t propose on a first date and neither should you expect the investor to necessarily offer money at the outset!
Mike Lebus is co-founder of Angel Investment Network (AIN), an online platform connecting startups with a global network of angel investors. With 40 networks extending to over 90 different countries and more than 1.8 million users, it is the largest angel investment community in the world.