Now that we’ve walked you through understanding and marketing your small business, and drafting your first business plan, the next logical step is securing additional funds. In a separate blog, we’ll talk about small business loans, how they work, and what kinds are available. In this post, we’re going to talk about securing investment capital, and some strategies to help.
[custom_headline type=”left” level=”h3″ looks_like=”h3″]Selling Your Business To An Investor[/custom_headline]
We’re not going to sugar coat it: pitching your small business to an investor is one of the bigger challenges you’re going to face as you look to grow. Simply having a great business plan is not enough to finance your business. You also need to have an engaging, dynamic presentation to give.
If you have a knack for conversations and public speaking, presenting your idea shouldn’t be too hard. It is important not to go on too long or get caught up in less-relevant details. Also, you don’t need to speak directly out of your business plan. Expect that if you sell them on your idea, they’ll be reading your full plan as a supplement, and before any agreement is reached.
Start your presentation by sharing the idea behind your small business. Use analogies to explain new product ideas, and make it seem as relevant to them as you can. From there, you can move into your main pitch.
[custom_headline type=”left” level=”h3″ looks_like=”h3″]Things To Keep In Mind For Your Pitch[/custom_headline]
- Star your pitch with your story. This will engage your potential investors right away. How does your work and life experience lead up to the creation of your business? Even more important, how did you identify the problem you are going to solve? Make the story of you and your company relatable to your investors Remember one of the most crucial things: Your story should address the problem you’re solving in the marketplace.
- Share what’s unique about your small business. After you explain the problem you’re solving, explain why your company, product, or service is the best solution for said-problem. Although your investors may be familiar with your industry, do not assume prior knowledge. Try to share the most pertinent information, keeping your pitch concise without overusing jargon or buzz words. Demonstrate your credibility by sharing your company’s accomplishments to date (sales and contracts, future orders and growth projections).
- Explain who your target market is. Pro tip: it’s not everyone. Take a realistic approach to who your market is, how big it is, and what your opportunities and barriers to growth will be. Create a fictional profile of your target customer – give him/her a name and a face. Tell your potential investor about his/her lifestyle and preferences to show deep insight into your target customer. Next, give your investor an idea of how you plan to reach your customers over the coming year(s). How much will it cost? Do you need to hire more people? How will you measure success?
- Who’s your competition? This section of your pitch will show and reinforce to investors that you have a realistic understanding of your market and your challenges. Explain who your main competitors are and your company’s unique value proposition – or how your value or unique product or service stacks against them. Don’t hesitate to also include non-intuitive competitors, too. For example, a coffee shop that offers lunch isn’t only competing with other coffee shops – it’s also competing with lunch establishments.
- Get into the weeds of your revenue model and financial projections. Small business investors are concerned about their financial returns first and foremost – so when you start talking about the economics of your business in your presentation, expect their ears to perk up. You should be able to answer very easily what your revenue model is, your pricing structure, how you will pay the bills, and when you will break even. Your projections model should include three to five years and show any and all of the assumptions you’ve made in reaching those numbers. Expect detailed questions from your potential investors about the numbers on your projections model and be prepared to answer ALL of them.
- It sounds cliché, but investors invest in people first. This isn’t just you, however. Explain what skills and passion you bring to the table, but also explain your team and why they’re the right people with the right skills to grow your small business. Also, don’t hide: be sure to share what skillsets you may be missing on your team. Let them know that you know what you don’t know and you are not afraid to ask for help.
- Now it’s time for your funding needs. Clearly spell-out how much money has already been invested in your company, by whom, who owns what percentages of the company, and how much more you need to get to the next level. Remind the investor(s) that your business and your team are built on a solid base. Clearly outline the total project cost, how much you are seeking in investment, and how the proposed investment will be structured.
- Lastly, where are you personally going in the long term? If you’re seeking large amounts of investment capital, most investors will want to know where you’re hoping to take the company years down the road. Are you planning on getting acquired? Going public? Show you’ve done some due diligence on your exit strategy, and why it would make sense years down the road.
[custom_headline type=”left” level=”h3″ looks_like=”h3″]Practice! And Time Your Presentation[/custom_headline]
When it comes to your presentation, prepare carefully. Write down your goals for the presentation, what you’re going to say and in what order, as well as questions you don’t want to be asked so you can make sure you are 100% prepared with corresponding responses. Decide how you’re going to set the tone and build rapport. Your presentation should focus on showing the investor how you will make money together in partnership.
Make sure that you do a few trial runs on your own, then move on to practice in front of friends. This will help to build your confidence and help you with a smooth delivery when the time comes.
Lastly: It’s important that your presentation does not go beyond 20 minutes. This is enough time to grab the attention of your audience. Anything more than 20 minutes can make your presentation feel like its dragging on, and investors may tune out of it. Time your presentation as you practice, so you know you’re coming in on time.
[custom_headline type=”left” level=”h3″ looks_like=”h3″]Some Resources To Help[/custom_headline]
We know it’s hard starting from a blank slate. Below you’ll find a sample investor pitch deck, to get you started on your own. We’ve also included a document on the anatomy of an investor term sheet, for the second leg of your negotiations. Before you receive a term sheet from an investor, you should consider that traditional investors usually structure a term sheet to protect themselves and, in some cases, get “as much as they can”. This guide should help you better understand some of what the investor is proposing.
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