There are a lot of smart entrepreneurs with smart ideas, yet are not able to get them moving. This ideas remain on pieces of papers or in their minds with no action taken. Once you ask them, the most common answer you get is lack of funding or finance. What should you do to attract investors to invest in your business?
Funding in my opinion may not be an impediment especially when a project is still at the idea stage. What entrepreneurs or would-be entrepreneurs should know is that investors will easily finance projects that have taken off and not idea. You may have the best idea for a business project, but once you don’t show proof of actually starting it, no one will risk their investment for your idea.
Investors look for projects that the owners have started and may have a good mastery of it. The bank will ask you for a 3 year cash-flow or statement of financial position because they will not invest their money for the entrepreneur to learn how to take risk on. If you may not know, there are many ways you can actually raise funds at the early stage of our business which you may not know.
At this early stage, it’s difficult for most investors to fund your ideas. There is usually a stage in a company’s development when you can easily get funds from investors. It is almost impossible at the idea stage, so rather than sit and say you have an idea but no funds to invest in, look for ways to raise some funds by yourself, because funders will always want to know your history first.
[In as much as your investors will want to look at the time-line of your business to know when it is suitable for them to invest, the entrepreneur also needs to vet the investors by carrying out a research on investor history. Especially investment companies that may be at the same stage where your company is currently in.]
There are many people out there who have the money to invest for a decent return on investment. How to convince them to invest in your business is where the problem lies. You will have to show proof that your business is profitable and there is little risk of failure.
On the part of the investors, there are many things they will be expecting from you the entrepreneur before they can invest in your business. Some of the most important will be:
Show to them your expected revenues and expenses. Carry out a research on existing businesses to come up with figures that are already in existence.
If you already have a business model that works, then you surely have an effective marketing channel that has been proven. It should have figures and projections for additional channels.
Your investors will want to know if there is a demand for your product or service. That is, if there are substantial growth opportunities for the product or service. To do this, you may have to provide some statistics, economic reports and any information that will give weight.
Investors will not want to put their investment in a business where the entrepreneur shows little or no mastery. They will expect you to show your strength – that is your actual experience in this business. If you don’t have, you will need to convince them that the experience you do have qualifies you to carry out the project activities.
Investors will want to know your weekly or monthly budget before they can invest in your business. Adding to that, you should also provide to the investor the annual budgets for at least 2 years.
Some investors may have no idea about how your business functions. Even though you may not have to give every details, you need to show your investor how the business will function. How you get your raw materials, storage, delivery and so on.
There are times when investors will not want you to give them a formal business plan like what a venture capitalist or the bank will be demanding from you. This is especially the case with angel investors who do not necessary want to have knowledge of your business before investing in.
The above 6 points are what I used to secure investment for Penn’s Natural Coconut Oil business. Firstly, I showed proof of the market potentials and the possibilities of increase growth and market channels. I laid out the revenue flow, costs and sales projects. I showed them my marketing channels and possible channels that we can use in future.
Since we were already in the middle of the year, I proposed to them a 6-month budget broken down monthly budget plan. I showed them the machine I needed to crush the the nuts with and how we can get a better and more efficient one at a cheap price. Someone could produce a better machine locally than importing one from China.
My investors were convinced and now we are at the second stage of our business – exploring other marketing channels.
Do you have a small business? Do you need external funding? Do you want others to invest in your business? Don’t hesitate to get in touch so we can discuss more.
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This content has been prepared for information purposes only. It is not intended to provide, and should not be relied on for, tax, accounting or legal advice. You need to consult your own tax, accounting or legal advisors before engaging in any transaction.