How to Help Investors Choose to Invest In Your Business

There comes a time in the life of every business when you need a little more (or a lot more) money to get things moving in the right direction. That’s where investors come in; they take a stake in your business in exchange for cash. But how do you get the attention of investors when there are so many businesses pitching investors every single day of the week?

Let’s take a look at how you can help investors to choose to invest in your business:

Customers Come First

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When an investor looks to put their money into a business; they’re usually not particularly concerned with what kind of product or service you are selling. That’s because it’s impossible to tell very much about the potential for a business from the products and services it delivers. There have been plenty of really cool products (or at least products that someone thought was cool) that have failed over the years (think Segway which actually got plenty of investors but has never lived up to its multi-million selling “potential”).

Investors have learned this the hard way. If you want to win over their investments; you need to focus on what really matters – customers. You need to be able to demonstrate that customers actually have a problem that your product/service solves for them and that you can do this in a cost-effective manner. (E.g. you’re not solving a $5 problem with a $50,000 solution).

You want to show that you’ve done your market research, that you’ve defined your target client or clients and that you’ve gone into serious detail when working out what that customer wants and will pay for. Profits come from customers and investors aren’t charities – they’re chasing profits.

What Problem Does Your Product Solve?

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Investors need to know that your product is going to solve a problem that’s actually worth solving. This again comes back to knowing your customers and being able to talk about them from a well-researched and factual position.

What the investor wants to see is that the problem fits within the core of a customer’s needs. They want to know what it is a customer has to do in a typical day/week/month/year and where the problem fits in among all the conflicting priorities that a customer has problems with.

For example, everyone has to eat so if your product solves the problem that healthy meals can be expensive and time consuming to cook – an investor is going to be relatively impressed. On the other hand if you’ve invented a tool for removing change from the back of the sofa – it’s unlikely that any customer is going to care enough to pay for something that can be remedied in a moment by hand.

Investors need to be certain that a problem affects a wide number of people and that those people are going to be able to be persuaded to pay for a solution to that problem.

What’s Your Exit Strategy?

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Investors are looking for return on investment; while they may be happy with a slice of the profits from a company they put their money in – they’d be much happier with a huge profit on the sale of the share of the company they bought. That’s their ultimate objective. Not for you to sell thousands of gizmos and to produce a decent rate of interest on their investment but rather to make a large amount of cash from the sale of the firm.

If you know that investors want to make money by selling their stake in the firm at a future date; you can help convince them that that’s what they will get by doing some research and developing an exit strategy.

An exit strategy is simply a plan to sell the company after a period of time. Who are the potential buyers for your company? What kind of acquisitions have they made in the past? When would the company become attractive as an acquisition target for these types of clients?

What strategic advantages is an acquiring company likely to get from purchasing your business? What precisely is it that would deliver that advantage? (Think intellectual property, talent, clients, etc. don’t just focus on what you’re selling at that time).

It’s this data which will enable an investor to see the “big picture” as far as their investment is concerned and if you can present that data convincingly; you’ll be a long way towards securing their backing.

Who Are You and What Do You Bring To the Table?

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Investors are often happy to provide strategic direction and support to the businesses that they place their cash into. However, before they do that – they want to know more about you. That is the team that founded the business.

Investors are usually keen to see that the founding members of the company have a strong, clear vision of the future. That they are hand on and involved with the day-to-day activity of the company and that they have a serious level of passion for their business and the commitment to take the business to the next level.

Why? It’s because your investors know just what it takes to get a business through the challenges involved in strategic execution and deliver results. A founding team, which sees the business simply as a vehicle for experimentation and which may or may not deliver results, isn’t going to inspire anyone to reach into their pocket and hand out millions of dollars.

You should show that you’re capable of solving business problems and that you’re ready to do whatever it takes (as long as it is both legal and ethical) to make your business succeed. This applies to each member of the team. You may need to give serious attention to reorganizing your management team if there are people that aren’t as committed as your would-be investors need them to be.

 

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Written by Lisa Huyhn

Lisa Huyhn

Lisa Huyhn is the Politics and Military & Defense Editor at BusinessPundit. She is a fiercely independent voter who believes in full transparency in politics & general government activities. You can reach her at Refinance Student Loans.