There are thousands of things to consider when you start up a small business. Funding is often top of the list - but with time and capital already tied up in getting your business off the ground, it can be difficult to know where to start. We’ve broken down the investment process, and come up with the five most important things to consider.
Hello - is it me you’re looking for?
Your small business is a package deal - it comes with you. And not just you the entrepreneur. An investor is looking for the you beyond the label. The you who came up with the idea for your start-up in the first place. The you whose style is indelibly imprinted on the whole of your business venture, from initial plan to current performance.
If you secure your investment, you’ll be working closely with your investor for the foreseeable future. It’s as important for you to get along with them as it is for them to believe in you. Sell yourself honestly and enthusiastically. Let your passion for your start-up come through in your pitch. No-one who created a small business with drive and vision ever did so without coming across as passionate about it.
Be stylish. Your style is what sets you apart from other start-ups in your field. It’s the defining element of your idea, which connects your product or service to its audience. When you pitch honestly, passionately, and uniquely to investors, you’re showing them more than just an ‘off the shelf’ business plan. You’re showing them a small business with soul, ambition, confidence.
Don’t mistake this for a recommendation to be showy or slick. If you go at your pitch like a carnival barker, your potential investor will see through you in a heartbeat. Back up your passion and style with solid, confidence-inspiring figures. Have you put your own money into the start-up? Do you have a network of reliable professional connections in place? This is what we like to call the one-two punch of personality. Get your investor interested with who you are, and get them hooked by showing them what a good relationship prospect you’ll make.
Show me the money
It’s all about the money, money, money: and if the figures don’t stack up, no amount of personality and drive is going to convince an investor to bet on you. Most start-up investors are looking to make reliable returns on capital they’ve set aside for the purpose, and they’re not in the business of taking a punt. Get your figures in order, in a way that proves you have the experience, seriousness of purpose, and realism to back up your unique idea.
Financials are where small business ideas meet the real world. An investor needs to know that their money will be well spent. They needs to see that the figure you are asking for will be applied to a specific set of business goals, which are realistically achievable and likely to generate the return they are looking for.
Your business plan is the core of your financial offering. It should be targeted to your investor and written in the most concise way possible. Use real figures and be prepared to explain every one of them. If you claim your start-up will be turning over £300,000 by the end of year two, you’ll need to be able to show where that figure comes from.
Convincing financials incorporate multiple fiscal years, and cover everything affecting the cash and asset realities of your small business. What’s the projected cashflow, year on year? What are your costs? Your investor is expecting a full profit and loss statement, which shows your ability to bring in profit. At the end of the day, this is what generates buyer interest and kickstarts your exit strategy (see the great escape, below).
Making the sale
You don’t have to know everything about marketing to have a marketable start-up. But you do need a brand that knows what it is. A clear, coherent brand is defined by three things:
1: Your idea
2: Your audience
3: Your products and services
These three elements play into one another to create a brand that resonates with its audience - and a start-up that resonates with its investors. Your idea defines the kind of audience your products and services will reach. Your audience defines the products and services you create. The kind of product or service your small business is going to supply is a starting-point for your idea.
Investors need to see how your brand is going to be marketed, even if its marketing strategy isn’t up and running yet. At the very least, you should be able to show an understanding of your market and the initial stages of developing a marketing plan. Ideally, you’ll also have spent time generating press for your start-up, building a website, and generating buzz on social media.
It isn’t what you know…
On- or off-line, networking is still the most powerful currency in the world. Consider your own situation. Let’s say you’re building that website, and a mutual acquaintance who also runs a small business recommends a developer. Who do you go for - the developer your contact recommends, or a company pitching to you cold?
The same bias is present for investors. What if someone in your network were already to know one of your target investors? Yes, you’ll still have to impress with your company’s awesomeness, but at least you’re playing to a willing audience. If you can convince a member of your professional network to pitch your start-up to a potential investor, you go into the crunch meeting with a significant advantage.
There’s another benefit to networking for investor introductions: your pitch is practiced and honed by the time you reach the money. No-one whose opinion counts is going to recommend an investor looks at your small business unless you’ve already convinced them that it rocks. Your contact functions as a gatekeeper, vetting your pitch before it goes through to the big boss.
The great escape
Your start-up hasn’t even gotten off the ground yet - so it might seem a bit strange to be planning for its sale to a bigger company, or its merger with a complementary business. But this ‘exit strategy’ is your investor’s endgame. It’s the plan that shows her how she walks away from the investment with the desired return on her stake money.
Build the exit strategy into your whole offering. Show your potential investor how her money is going to take your start-up to a level that attracts the notice of buyers. With the right financials, the right marketing, and the right marriage of personalities, the exit strategy could be what tips her over into decision-making territory - and the beginning of a beautiful friendship.
Finding an investor takes time and money, and you’ll hear the word ‘no’ a lot more than you hear the word ‘yes’. But if your idea is sound and your passion is strong, you’ll get there in the end. Factor the travel and expense of investment-hunting into your plan. Put in the work: chase potential investors down, stick close to them, and wow them with your start-up. When you hear the magic word ’yes’, it’s all worth it.