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You’ve started up a small business, but you have big ambitions. You have your sights set on growth, but you don’t have the cash flow to make the capital investments necessary to pursue it. There are a number of ways to raise funds for your business. You could get a business loan from a commercial lender, look for government grants in your area, or approach outside investors like venture capitalists and business angels.
Dealing with investors can be a nerve-wracking experience, but it brings with it some distinct advantages. Investors will often be more flexible in when and how they are repaid than commercial lenders, and some will accept a share in future profits rather than insisting on a strict repayment schedule. What’s more, investors are often willing to share knowledge and insights gleaned from years of business experience which could be just as valuable to your company as the capital they invest.
Talking to investors is one of the most important skills an entrepreneur can build. A great investment pitch can mean the difference between securing investment and seeing that investment go to a competitor. Here, we share 7 tips for your business pitch that will win over investors and give you the finance and expertise necessary to achieve your goals.
1. Get excited
When dealing with investors, it’s easy to get overwhelmed and for your enthusiasm to flag. They will often ask you questions that are specifically intended to expose your weaknesses and limitations. This is to be expected. They want to gain a solid understanding of the company (and people) they are investing in – the good and the bad.
However, don’t let their apparent negativity stymie your passion. Your passion built your business, and they want to see that you are fully invested in your company and genuinely excited by your plans for the future.
As long as you can back it up with tangible data, you can expect that excitement and enthusiasm to rub off on investors.
2. Be optimistic, but provide facts to back up your optimism
Optimism and enthusiasm are extremely important. But in the eyes of an investor, there is a fine line between unwavering optimism and delusion. When talking to investors, try to avoid making unqualified statements. Ensure that all projected costs are carefully calculated and itemised, while all projected profit margins are backed by historical data from within your company. Don’t make the mistake of building financial projections on your competitors’ data, as there are too many variables separating your operational model from theirs.
That’s not to say that you can’t mention best-case scenarios, and project a sunny outlook. Just make sure that this is tempered with careful budgeting and projections based on solid data.
3. Offer options and flexibility
It’s important to have a clear idea of what you want when you make your investment pitch, but that doesn’t mean you should absolutely refuse to compromise. Approach investors with an ‘all or nothing’ pitch and they have only two options – commit or walk.
What’s often far more palatable to investors is to give them a range of options and show that you are willing to be flexible. This empowers them to decide their own level of involvement, risk and reward.
4. Be open and honest about what you want
Investors want to know that yours is the right business for them. But they also want to know that they are the right investor for you. Explain the reason why you chose them, and why their knowledge, history, experience and capabilities would be instrumental in helping you achieve your business goals.
Only by being transparent about your expectations of them can investors be sure whether they are a good fit for you. For instance, are you only looking for capital, or are you looking for someone who will provide mentoring and guidance as well? Are you looking for an investor who will offer gentle guidance but won’t rock the boat? Or are you happy to engage in a joint venture with an activist investor who will make changes to the way your company operates? Furthermore, one of the most important business pitch tips we can offer is not to underestimate how much capital your project will need as this can lead to friction.
It can be tempting to tell investors what you think they want to hear in order to get them to commit. But this can lead to friction and catastrophic disagreements later on.
5. Be specific about how you will use their investment
Your investment pitch should be objective-based and outline the positive outcomes that investors can expect as their speculation bears fruit. But don’t forget to explain the journey as well as the destination.
Just as it is important to be specific and transparent about how much of their capital you will need, you also need to be clear about how that capital will be put to use.
For instance, it may enable you to invest in more sophisticated equipment and more efficient processes. It may be used to hire key personnel or pay for raw materials in greater volumes at bulk discounts. The more information you can provide, the better informed their decision will be.
6. Keep them in the loop
Some investors are more active in their approach than others. But even the most hands-off investors will appreciate open lines of communication. Once they are on board, keep them in the loop with regular updates. Again, take this opportunity to explain where their capital has been invested and the effect that this continues to have on your business operations. Let them know how your real-term finances measure up against your forecasting. That way, they can feel assured that their investment is in safe hands. That said, be sure to share any bad news in a timely manner so that they can react accordingly.
7. Don’t give up your controlling stake
Flexibility is important, and you should be open to compromise when dealing with investors. You may also feel comfortable offering them shared ownership and the opportunity to actively shape the company’s strategy. But even if you take on an activist investor, don’t give up so much of your business that you lose your controlling stake. Otherwise, you may find yourself locked out of the decision-making process and become a powerless spectator in your company operations.
