Super cool Idea. Check. Business Model. Check. Killer Presentation. Check. Elevator Pitch. Check. Ready to meet the Investors? Check…Hey, hold up, not so fast. Just because you think you’ve aced the investor requirement checklist doesn’t mean that you’re ready for the huge inflow of capital. Hold your horses, take a step back and relax while we run through some other things you need to know before sourcing for funds from investors.
Venture Capital, Crowdfunding, Angel Investment, Friends and Family…are some of the options available for any entrepreneur – newbie or veteran, to source for funds. Just before you rush and start trading capital for equity, here are some of the things you need to know about funding a business and how to improve the odds of getting them.
No investor would put hard-earned money into a venture just for the sake of how innovative a product or an idea is, there has to be a very strong potential for generating turnover and a market for such a product. Because, ideas are worth a dime without some sort of business strategy to back it. First, you need to ensure that you’re presenting a business plan and not a mere idea. Some of the questions you should ask yourself are:
- What set of values are you planning to sell?
- In what way is your product unique from the myriad of others already existing?
- What are the challenges to be faced in delivering the set of values and how can they be reduced to the barest minimum?
All these should come baked in with you planning process because once you fail in the planning stage, you are already planning to fail. Your goal here is to present an overview on your business and how you intend to make money.
Market analysis and research are mostly overlooked during the planning process for first-time entrepreneurs. But it cannot be overstated enough, given the insights it gives. While carrying out your market research, you may want to find out how profitable your idea is, business location, target market and market demographics. In general, you need to study your potential clients, the competition and the environment. Adequate market research would not only save you a lot of headache, it also helps to give a clear and concise structure to your business plan. Just as you wouldn’t just leave your home to travel without a destination, itinerary and information on the destination, you shouldn’t start a venture without carrying out adequate market analysis.
With all that under control you need to map out your long- and short-term goals. What milestones do you need to achieve after a year, two years, five? With your research and analysis done, you should have a clearer view of where you are headed and things to be done to reach and achieve those milestones. All you’re doing is basically adding a timeline to measure growth rate and scalability. Start with the easy milestones that can be achieved within a few months, while keeping the major objectives in scope.
With all these done, you just might be ready to meet with that investor and pitch away. But do you really need an investor, or for what purposes do you need the investment for and how much equity are you willing to give up for it? A lot of entrepreneurs seek funding without being specific about what the capital will be used for. This is a sure way to lead to mismanagement of funds. Knowing exactly what you need helps simplify the fundraising process. It might turn out you really need a mentor or a partner who has a large network-base, instead of an investor.
Your type of business also determines the type of funding appropriate for you. If you’re a small-growth business with limited reach then it’s possible you need a loan instead. For those just starting out, an angel investor with the right contacts would do just fine. Also, nothing gives your business more credibility like having vested interests. Investors will be more willing to fund you when they realize you’ve got something at stake. So be your first investor by putting your money where your mouth is. This would go a long a way to show that you believe in your business as well.
Finally, how much control are you willing to give up. Many business owners have traded much needed control for the initial influx of funding, losing the decision making powers and direction. So, it is imperative to make an informed decision because once it’s done you can’t pull back. So tread with caution and if you can achieve milestones without external funding, be our guest, because eventually that will be the bane of your business. But when you do reach out for funding ensure that you’re not getting served the short-end of the stick in terms of company value.