During my time as an early-stage investor, I would get super-frustrated every time a team of enthusiastic and energy-ridden entrepreneurs would come through the doors of our offices ill-prepared for our meeting. The idea they have may be great, the team may rock but it was a blow to the stomach to hear their lacklustre and uncertain responses to a basic stream of questions that they really should have anticipated and prepared for in advance of the meeting.
Putting in so much effort on the product or service, the team-build and the networking all gets compromised when poor planning is evident at a fundraising meeting. As such, I have outlined what I believe as being the 5 key areas entrepreneurs need to have a key grasp of before setting up meetings with investors.
1. Explain your team
One of the most important things any type of investor will be interested in will be knowing more about the team of guys that they are backing to deliver a return on their investment. It really is about the team more than your business idea or the fancy suit you wear to the meeting (!) That will help you clinch the funding you want. Ideally an investor needs to understand why the team is made up with who is in it and what contribution to the growth of the business each individual will have. Individually, all of you should be able to demonstrate why you want to be part of the journey of a start-up or small business and explain any relevant experience you have of the role you are being asked to carry out in the team, and / or previous experiences of working in start-ups and with investors.
As a team, you all should be able to explain how you work as a team and what team strengths are. A toolkit of complimentary and balanced skills is what an investor is keen to see rather than Lone Rangers who have yes-men around them to boost their ego! As a team you should be able to explain what you are looking to achieve through the business and what your personal aims are. Hint: do not say you want to be retired in two years and on the beach sipping Mai Tai's if the rest of your team is focused on the long-term. In fact, do not say you want to be sipping Mai Tai's any time soon, period. Saying you want to be gazillionaires is fine as long as that's not your only aim and motivation for being at the meeting. Show ambition. Show confidence. Show assurity that you have confidence in the product or service you are building and in its near-term market potential.
2. Know your service (or product)
Not knowing your service or product is a carnal sin as far as talking to anyone about your business is concerned. If you can not explain your business to your 4 year old niece or nephew and combat the barrage of "why's" that you get back after each response, you can safely assume that you need to think more about what you are doing and why. Remember, investors see ten or more businesses like yours every week, operating in the same sub-sector and trying to solve similar problems. Hence, they have already done their homework and have probably taken their thinking down avenues you have not even considered yet. It will be impossible to cover all eventualities of course, but you should have considered a lot of the basics such as what problem your company will solve, what the key differentiator about your business is that makes it special, why no-one else can replicate your model, how you will price and why people will be willing to pay, and the steps your foresee as being those that will help to take your business to the next level and deliver value to all. We discuss some of these themes now.
3. Know the market you operate in
Having an understanding of the market you operate in is essential to demonstrate your credibility to any investor about your understanding of the space you operate in. This not only shows preparedness, but also highlights your seriousness and passion for what you are building. Being aloof to any new regulations does not look well. Also, being unfamiliar with any key competitors in your market will not go down well with an investor either. Remember, they may well have spoken to many other teams who are building something similar to you or have built it and so will know those businesses very well and the challenges they have faced. Research them. Talk to people in the sector. Understand who is up to what. Rumour is important. Demonstrate to the investor that you know your competitor better than anyone else.
You need to have done at least some high-level calculations to size the market opportunity you are addressing. What is the $ £ or spend in your sub-sector? Is it a growing or a shrinking market? Is it a big enough market for you to continue growing your market-share of? Important questions that you should have naturally addressed earlier through your natural curiosity and interest when sizing up your business idea.
4. Know your key financials
Investors are money people and love to understand the numbers. That is the one tangible thing they can use to argue for or against at their investment committee (the group of guys in their company who will decide whether or not you get funding). Like it or not, you will have to prepare yourselves for presenting your story with numbers as well as words. If you do not have a penchant for the numbers amongst you then fear not. I believe in keeping things simple. In a later post we will talk about exactly the things you need to have pinned down and clear in your own heads. At a high-level the investor will be trying to gauge how much thought you have put into the commercials of building your business. It will help them size up whether or not the $ 1 billion valuation you have on your company at the end of Year 2 in the plan is plausible through the assumptions you are making now!
Largely at early-stage discussions many of the financials discussions focus on forward projections unless you have been fortunate enough to have had significant trading to date. Assuming you do not have much current trading, having projections that are built bottom-up and are based on sensible assumptions for sales growth and profit margins are a good start for you to have a sensible discussion with any investor. Be conservative. Do not be brash. Do not worry if you do not end up with Year 3 sales of $ 50m, but equally, if after 5 years you are still struggling to project sales of £ 100k then clearly there is something wrong with you business model.
5. Explain your strategy
A clear, simple strategy needs to be outlined during discussions to give comfort to the investor that you, at the very least, have an idea of which way you are going. This strategy may well change as time goes by as things change but having an initial plan of how you want to progress things is no bad thing. This would typically include who the first group of customers you will approach are and why? Who you will approach next? What will be your pricing strategy? Geographical presence? Product development road map? Funding profile? Team development? Be sensible. Investors are not looking for a team who are looking to take over the world. They are looking for a genuine team that demonstrate inch-by-inch that the odds are the investor will make money by backing them and not lose money!
Having these areas prepared and discussed, as a team will advance you ahead of the queue as far as standing you out from the crowd is concerned. In an environment where supply of entrepreneurs seeking investment outstrips demand, being prepared in this way is essential for you to get it right.