Find me an entrepreneur, and I’ll show an individual looking to make money. While it can be challenging to design a superior mousetrap, it can be even more difficult to locate an investor. Entrepreneurs are constantly seeking out the best connections, whether the perfect networking partner or someone who has credibility and will introduce them to the appropriate person with money in their pockets. In the end, it’s not about who you are but more about what you have.
Everyone knows and admires the stories of entrepreneurs that had a quick seed funding round in just ten days and then, five years later, were listed on the NYSE. Sure, sometimes it happens that a Cinderella story is told; however, the reality is that there’s no way to fund a business traditionally. Investors know that around 20% of all new ventures fail within the first year, while 30% fail within the second year, and after five years, approximately 50% of them have been shut down. Investors are therefore more cautious and skeptical by nature.
Hayden Holland AZ believes that the startups must be aware of how to draw investors in should they wish to be the money they need. In this piece, I’ve gathered the lessons I learned from my experience. I have included an analysis of the main things investors are looking for before making an investment decision, as well as some suggestions on how to find funding.
- Passionate founders with a stake in the Game
A passion for their business is easy to find for entrepreneurs. They are convinced of the product or service they intend to provide. They believe that the product or service is a significant improvement over the existing products or an innovative solution to an old issue. In terms of the most effective mousetrap. But what do they feel about their product? Are they prepared to endure being told “No” repeatedly and repeatedly and continue going? While most investors are enthusiastic entrepreneurs, they’re also seeking someone willing to put their own money into it. While working in the field of actual equipment and real estate lending, I got a call from a gentleman who was looking to start the first kiwi-growing farming operation in Georgia. He told me that while the New Zealand growers had winter, Georgia had summer, and the market for kiwis would be all to himself. He’d found the land to buy, had a list of equipment to be purchased, and identified a wholesaler of fruit who would buy his crops (although there was no commitment). He hoped to sell kiwis at 50 cents each. All needed was 100 percent financing of the initial cost. I told him, “What you have is an idea, not a commercial venture.” And by the way, this was 20 years ago. I’ve never witnessed kiwis selling at greater than 33 cents never.
As founders, you’ll be required to find the capital you need to start your business. This can be done through your savings, loans, or from your family, friends, family, and other sources. However, you must show that you trust the products or services enough to put in your own funds. It will be your responsibility to start your business by yourself.
- Traction
In most cases, the new venture must prove that it can market its product or service. This usually means establishing operations and demonstrating the capability to sell its product. Somehow, the experience should be able to provide the “proof that it is a viable concept” to prove to investors.
- A Major Market Size
Most investors are seeking opportunities for the business’s potential for growth. Your growth potential is restricted if your target market is just 25 miles surrounding the headquarters. It is essential to have a market that has significant coverage, at a minimum regionally, based on the nature of the product. If you’re selling surfing boards, one regional market is located in the coastal areas, but considering the overall market for surfboards could be enough. It’s not every product that is going to be a global market, such as the iPhone. However, a vast enough market that economies of scale can be integrated into your business to boost profits and margins will be required to attract investors.
The same problems apply if the product isn’t brand new but is a new entry into an existing market. It is, however, assumed that the market share you earn comes from a competitor, so your competitive advantage should be proven.
- Product Differentiation/Competitive Advantage
If you’re selling an item that has never been seen before and you’re the first on the market, it could be the case. But, the majority of startups are attempting to enter existing markets. What makes you unique? Think about MVMT watches. The company realized that there are numerous quality timepieces available on the market. Their goal was to offer top-quality timepieces at a reasonable price. Their competitive advantage is their affordable price that is equal to the quality.
- Team Members and delegation
To cut costs, many startup companies have minimal staffing, typically just two or three founders of the business. If a business has just one to ten workers isn’t much of a problem, it’s the question of whether the company has sufficient key personnel covering the most crucial areas. For instance, if your company is working on the following application of blockchain technology, is there an employee skilled in the blockchain technology field? It is essential to be knowledgeable about the market or technology you’re going into.
Another is the area of operating control. Investors want to know that you (or your employees) have established operating guidelines and procedures to manage the business and ensure that the investment they make is not wasted. Your company must be able to move past that “fake it until you create it” phase, or investors won’t have the confidence that the company you run has been established as “a genuine business.”
As the business’s founder, did you delegate authority to experts? No one has all the abilities required for running a successful business. But, the founders of companies tend to be more than parents in how they conduct their company (i.e., it’s like their child). The founder(s) attempt to wear many tasks and control to their own. Investors are more comfortable in a company with an established team and where the team members have the expertise they require and are granted enough authority to manage their areas of operations.
- Exit Strategy
Investors are faced with two major financial concerns about projects. What amount do I have to put into it, and what time do I need to put it in? What will I get back, and when do I receive it? Both of these issues can be answered through an extensive financial forecast. The kind of projection investors are looking for includes:
- An exhaustive description of the assumptions used to create the model
- Complete collection of pre-forma financial statements: Income statement, Balance Sheet, and cash flow statement
- An analysis of return on investment using capital budgeting techniques and different ROI calculation methods.
- Analyzing the sensitivities of variables that are important to us.
- Uses and sources of cash report
It is recommended that models be designed with monthly-level detail since this permits the monthly cash deficits to be recognized. I have created models in which the company had positive cash flow during the entire year but had negative cash flow during the initial few months. Making models with a solid annual foundation may obscure these particulars and underestimate the amount of cash needed. Investors are unhappy that you must return for more funds because you didn’t realize the necessity to model.
- The”X-factor
Have you ever been on a plane, and once the conversation gets underway, you realize that you don’t have much to share in terms of professional or social; however, it seems that you meet somehow? This is what’s known as the”X-factor. When you have meetings with investors, chemistry is hard to describe. Perhaps it’s a personal connection. It could be a connection because you’re in the same fraternity or have some of the same individuals. It’s impossible to think of the X-factor, and you won’t be able to seek it out. If, however, you discover it, it can benefit you.
The most effective way to determine if the X-factor exists is to reflect your authentic self in your presentation. Don’t try to be professional. You are who you are. You are the entrepreneur with an idea. It could be financially and socially advantageous. Speak to investors, not with them. Also, listen to them. The questions they pose and their responses will let you know what they think is important to them. The listening process will result in identifying factors that can indicate whether the X-factor is present or not.
