You have finally built up the courage to take the great leap and start your own business. To
make this dream a reality, you need capital for expenses such as salaries, raw materials and marketing. As you begin to crunch those figures, you may think to yourself, “Trinidad and Tobago’s current economy is tough.” Bank loans may not be the right match for you, as they traditionally come with impossible requirements and strict payment terms, which can be difficult for a small business. Your next best bet? Attracting an investor.
With so many start-ups and small businesses emerging in the local business landscape, how do you attract an investor — and just as importantly, the right investor? A relationship with an investor can be a lifelong commitment, often compared to a marriage. In many ways, courting an investor for your new business is similar to courting a life partner. We’ll use this analogy to help you develop a step-by-step guide on how to attract the ideal investor for you and your business.
First, you need to level up your game. If you have played video games, you’ll know that “levelling up” means enhancing your skills and acquiring experience to become better and stronger. To attract the life partner you want, you will likely level up your game by investing time and energy in going to the gym, updating your closet or advancing your career. Likewise, you need to level up your game by getting your business market-ready and highlighting the company’s unique selling propositions (USPs). Give people a reason to want to invest in you and your company. By developing your business idea and shaping it into reality, you will begin to acquire customers and develop traction. This will show results and prove to investors that your idea is a real working model, revenue positive, and with a sizeable market. It is much easier for an investor to invest in a product that has proven results than fund a concept on a
piece of paper.
Consider bootstrapping (raising money on your own, without any investors) and launching the company, even if it’s on a small scale. Borrow money from trusted family and friends, use savings, sell your car, or start your business from home. This can be a difficult hurdle to overcome, but where there is a will, there is a way. Risking all you have in order to develop your idea demonstrates confidence in your company; this in itself has the potential to attract investors. The same way a confident individual attracts the desired life partner, a confident entrepreneur attracts ideal investors. The launching phase also presents the perfect opportunity to bring together a strong management team. Investors are attracted to start-ups that have a skilled core team; in fact, they often prefer to support new businesses that boast a balanced team with a rich background and a global perspective.
Once you launch, it will help if you develop an understanding of your metrics. Considering how rapidly the current business environment is changing, it is essential to get an early understanding of this. You must be brisk when it comes to analysing your metrics, to learn how these numbers will influence your financial plan in the future. Once you learn this skill, you will develop strategies to spend capital in a manner that will drive your business forward. This will demonstrate your understanding of your business, something investors will want to see.
Know your investors
The next step is to get to know your investors. Before you tie the knot, you need to know if your partner is the right match for you: you learn about them through their friends and family, through dating and communicating with each other. Knowing your betrothed is a crucial aspect of building a stable relationship. Similarly, you need to know your investors in order to foster a successful, long-lasting relationship. Research your investors on the Internet via online professional databases online such as LinkedIn, or ask other start-ups for their advice.
Here’s what you need to know:
- Geographic location — Investors prefer investing in areas where they have networks and contacts to strategically assist the start-up, so it’s best to narrow down your contact list to investors who are used to working in your region.
- Industry type — Investors typically put capital into industries that are similar to their field of expertise, or areas of personal interest to them. Look for investors that are
willing to invest in your industry.
- Capacity of involvement — Transparency is key when it comes to figuring out the capacity in which the investor would like to participate in the company. Will the investor play an active or passive role? Knowing this at the start will prevent both parties from feeling disappointed or frustrated further down the road.
- Preferred valuation range — Know if your start-up is valued within a range that is desirable for the investor; otherwise, you may be too early (or too late) to attract their interest.
- Investment budget — Investors usually have a particular amount of money they dedicate to investing in start-ups. Being aware of their investment budget up-front will allow you compare their potential capital injection with your projected budget. This information will help you in selecting the ideal investor/s.
Learning about your investors, as you would a life partner, allows you to figure out which investor will contribute tangible value to your business. This is vital, because it’s not just about financial security — it’s about finding an investor who genuinely believes in your idea. Through your research, you will gather the necessary information to help you decide on a suitable partner.
Types of investors
You need to know the difference between an angel investor and a venture capitalist. Accredited angel use their personal money to invest in small businesses. They typically invest smaller amounts than venture capitalists, with return rates of between 20% and 25%. Angels are more likely to invest in companies that are just starting out, so they can play more of a mentorship role.
On the other hand, venture capitalists invest money pooled from investment companies, large
corporations, and pension funds. They tend to invest in businesses that are already established, and they offer more substantial amounts. Return rates vary, but on average, they run between 25% and 35%. Venture capitalists have no desire to be mentors, but may ask you to give them a seat on your Board of Directors.
Make your move
Once you have found the investor that fits your portfolio, it’s time to make your move. Just as you may get those butterflies in your stomach when approaching a prospective life partner, it’s natural to feel nervous about approaching a potential investor. You may feel awkward and lost for words, but to get the capital, you first need to get their attention. You should know by now what each investor’s criteria are, so spend some time fine-tuning your business proposal based on your research. Knowing your pitch inside out will prevent those awkward moments of silence, because you will know exactly what to say.
It’s all about the soft sell; networking is the key. Take action and make things happen. Show up at functions and events that your target investors attend. Networking allows you to make
that human connection and naturally bring up the subject of your business in an informal
setting. By sparking conversations with your leads, you will know whether or not they are interested in your business.
When speaking with investors, inspire them with your entrepreneurial passion about your company — your zeal will act like a magnet, attracting them with your enthusiasm, commitment, and belief in your idea. Once you have got their attention, make sure you secure an avenue through which to follow up and seal the deal — get their contact information, then call or email them to request a meeting to make a formal pitch.
Now is the time to re-evaluate your proposal and sharpen your pitch. It’s imperative to refrain from focusing only on yourself and your business model; investors need to profit from their investment as well, so highlight their return on investment and what they can gain from your venture. Make sure your pitch is concise, encapsulates all the necessary points, and is delivered with passion. Remember, investors have incredibly hectic schedules you don’t want
to chase them away with a long, annoying pitch.
Quick tip: You may need further investment as your company grows; raising a Series A is just the beginning. You will have to raise Series B for further development. Learn from Series A and grasp an understanding of the metrics to successfully raise Series B before you tackle investors in the second rounds.
Maintain the relationship
Every successful relationship needs work. Entrepreneurs need to make an effort to keep their contract with investors in good standing, so be mindful of your investor’s needs while meeting your own expectations.
Communication is paramount if you want to strengthen your bond; keep in touch via regular, emails, calls, lunch meetings, or even business apps, such as Slack. Based on the type of agreement your have with your investors, keep them abreast of developments in the company. Establishing this relationship is a long-term process; generally, it can take up to a year after you make your first move for an investor to make a deal.
Compromise is also an important aspect of maintaining any relationship. There will naturally be disagreements from time to time, but it’s crucial to resolve issues in a timely and respectful manner, and decide what both parties require in order to move forward. Attracting investors can be a daunting task for new companies, since they lack trade history. The process requires a lot of thought and takes a considerable amount of time, so don’t be discouraged, attracting investors is a marathon, not a sprint. Persistence guarantees results.