The year 2015 was a great year for startups and with 2016 now well underway, we’d expect that many entrepreneurs are full to the brim with excitement at what the year has in store. However, alongside this excitement, there is no doubt going to be a lot of trepidation, and with good reason, especially when you start to think about how you’re going to raise all the money you need!
Entrepreneurs are always at their perkiest at the start of the year; the main reason being, they are still fresh and have not yet been knocked back by investor after investor. If you are in this current state, do take the time to properly think about if you’re really ready and fully prepared to face the money-raising challenge.
To help you prepare, here are seven questions that you should be able to answer before you even think about standing up in front of an investor and asking for money for your startup.
1. What solution does your idea provide?
So many entrepreneurs fall into the trap of thinking that their idea actually provides a solution to something. Often this is because they have experienced a problem and, in finding their own solution, mistakenly believe that lots of other people have experienced the same problem. Unfortunately entrepreneurs are commonly incorrect in making this assumption.
You need to ask yourself if your idea is truly going to solve many other people’s problems, not just your own. If it doesn’t, no investor is going to want to invest. Make sure you have done plenty of market research to prove your solution resolves not just one of your own problems but other people’s too. The more research you do, the more credible your idea will appear to investors.
2. Do you know the size of your market?
An investor will expect you to know your target market inside out. Do not disappoint them, especially when it comes to market demographics, such as age, gender, geographic location etc. You need to be able to evidence you have done your homework into your market and that you are aware of how to gain traction within your particular niche and what market share you can expect.
3. How is your startup going to make money in the short and long term?
This is, of course, an incredibly important question for you to answer properly when dealing with investors since your answer could literally mean a yay or a nay. You need to pay attention to how you can make your business sustainable, i.e. what happens when everyone you’ve targeted has bought one of your products. Where do you go from there?
Take the time and do the working out into what your plans are for the short term, and then the long term. If you do the work and firm up these plans and are confident in them, investors will be able to tell.
4. How will you defend your idea from competitors and other entrepreneurs?
The last thing an investor wants is to invest in your business only for competitors to come along and steal the idea. You need to assure your investors that their money is going to be protected. You need to defend your idea or your product to ensure no one else starts providing the solution that you have been so carefully thinking on and gaining investment for, over the past few years.
5. What makes your team qualified to deliver on your idea?
Investors will be very interested to learn about the team that will be delivering on your idea. They need to have confidence in you, of course, but they will also need a lot of confidence in your team. How your idea is going to be executed is something every investor will want to know.
Investors need to be assured that your team is experienced and more than qualified to deliver on what you are promising so do everything you can to build up their confidence in your team!
6. Are you prepared to sell your company in the future?
When an investor puts money into your business, they need to know that they will be getting it out at some point, for instance when you sell your company a few years down the line, or when you bring in another round of investors. Are you prepared for this? You need to ensure you can present potential investors with an exit strategy that is not only clear and realistic but timely too.
7. What positive impact is your startup going to make on the world?
More and more you will find that investors are looking for ways that they can leave their mark on the world; a positive mark! Investors obviously want to invest in a business where they will receive a good return on investment but they also want to ensure their money will help make a positive impact on the world. Make sure you can talk about your startup’s corporate social responsibility or philanthropic goals and be sure to include them when you are pitching to potential investors.
At the end of the day, you can never be absolutely sure whether someone is going to invest in you or not. One thing that you can be sure of though, is that the more prepared you are, the better the impression you will give. The better the impression you give, the more likely it is that you will be successful in securing investment.
Above all, never go into a meeting that you are unprepared for – this could do too much damage to your company’s, and your own, reputation that you might never be able to recover from.