I had the pleasure of attending the MoneyChase which was put on by ventureLAB in Markham a couple weeks back. There were eighteen presenters who presented to an audience of Angel Investors.  Since I am a huge fan of the Dragon’s Den, this was like a mini-version but up front and personal.

Since one of our services is working with small business and introducing investors, it was a great exercise to listen to the presentations and try to figure out myself why one company would hold an interest for investors and another one would not.   It is hard when you see how much the founder believes in and is passionate about what he/she is presenting and wonders why investors are not flocking to them.   Since that time I have been asked by a couple people about my thoughts concerning investors and what they are looking for, so I thought I would share this hoping it might help an entrepreneur seeking investment in tightening up their story/plan before approaching an investor.

These tips have been developed through my work with the financial community. Remember to keep in mind that approximately only 1 in 10 start-ups actually succeed and that investors are looking for that 1, not the other 9.

10 Tips to Consider Before Looking for Investment

  • Before you present, keep in mind you understand your product, but if you cannot convey your product to the investor so that they are able to see the value, you will lose their interest quickly.  You need to translate the engineer speak to market speak and then market speak into profitability speak.   
  • Know your market, the size of the market, your competition, and be able to articulate how much of that market you think is feasible for your company to address over the next 3-5 years. 
  • It helps to look for investors that understand your market and industry.  Asking someone focused in retail to invest in a bio-med or cloud computing product is probably a stretch.  If you look at Angel or Venture Capital sites, most list the industries that they focus.  
  • Before you ask an investor to put their hard earned money into your company, make sure that you have already invested yourself in labour and funds.  Before asking someone from the outside, you should exhaust the friends and family route. If you don’t have any skin in the game, this is a sign of your commitment or lack there of.  
  • Many are confused as to why investors do not typically invest in “ideas” that are not products.  Ask yourself if this was your money – would you?  You need to have a product or service already created. If you do not have any revenue, you need to at least have prospects and partnerships underway and possibly have a beta program in place.  You may be passionate about your product, but the investor has all of the risk and this is a business and a way of creating revenue for themselves or their firm.  
  • The more unique or patentable your idea, the better it is.  If you have a “me too” product, you need to make sure you can prove that you have a unique value proposition from your competition.  If you are entering a market where someone has 60% of the market share today or are large corporations, it is going to be hard to convince someone that there will be any revenue made.  
  • If you are looking for an investor versus a loan from a financial institution, you need to make sure that you are prepared to give up a portion of your company for the money or know you will pay a royalty payment depending on the investor and how they want to structure the deal.   Revenue, assets, patents, or anything tangible is what will be used to evaluate your business in early stages and how much of this that exists will be weighted as to the worth.   If you are asking for $350,000 investment and none of this exists, even if you could even attract an investor, you will be giving up a majority of your company, if not all of it and they could look to pay you only a royalty payment.  
  • Make sure your financials make sense and if numbers are not your forte, then invest in getting an accountant to review this with you.  It is true in most cases a lot of this is speculative based on certain events, but you need to make sure based on business plan that the numbers are as solid as they can be.  
  • Make sure you surround yourself with advisors and people that can help you get your business off the ground, as no one is an expert in every facet of a business.   If you are an engineer, you most likely need sales and marketing expertise.  Maybe you are excellent at sales and marketing, but you do not have the background for operations or finance – find the help you need.   Investors will look at you and “your team” to determine your track record and expertise.  
  • All of this needs to be addressed in a solid business plan as you might get interest from an initial presentation, but eventually you will have to provide the detail behind your plan.  Just as with a financial institution, you don’t get 100 chances, you need to make sure the business plan you present is not full of holes.  The worst thing is to actually have a viable business but not have a plan that represents it properly and get turned down.  

Of course since the Dragon’s Den is on television, there is drama added to keep the interest of the viewer, but the investors sitting there and the comments that are given are exactly what you can expect minus Kevin O’Leary yelling at you that he wants to make money , you are a wing nut  or he wants you to evaporate.  How many times do you watch and see someone unprepared,  someone ask for a million dollars without any of their own investment or a product or revenue, or someone not have the background or expertise and are looking for a Dragon  to take their idea, the risk and invest their personal money?   Private equity is a business and any Angel or Venture Capitalist is not investing in your business out of the kindness of their heart.  They are looking to make a profit.  For the investment, they also can help a business as well with contacts, marketing, distribution or other requirements – but the bottom line they are doing this to help increase their profits.

Before you ask someone to take a risk in you and your business, make sure you have all the i’s dotted and the t’s crossed so that you find the right investor and the money you need to help your business take off.