What do investors look for when investing in start-ups?
Any good writer will tell you that you need to know your audience before you begin writing. So who are investors? There are investors that have been successful in making their own businesses, who now want to put their money down in something new, and see if they can make it happen again. There are investors that want to have a piece of the pie, but they want to help mix the ingredients, and put it all in the pan to bake it too. There are investors that want to put their money down and watch it grow so long as they are able to cash out in three to five years. Investors all have the same goal — to make money. So, when you write your business plan, remember that it’s all about the money.
Whatever your business revolves around, a unique product or a special service, it’s got to be original in some aspect to get the attention of investors. If it isn’t going to corner the market, investors aren’t going to put a penny down. You need to show that your business is scalable – that it can grow quickly in the next couple of years. Explain how your business venture is going to make a high return on their investment. Use industry and market statistics. Explain why your competitive edge will lead to more market share. You’ve got to make your plan realistic and demonstrate that an investment in your business venture is a sound decision.
Business plans must be packed with facts and reliable sources to back up those facts. Using a reference from an opinion magazine that has no credibility with the field of business you’re going to be impacting will not get you there. You’ve got to show in your business plan that you’re up for the challenge. Read serious business publications like the Wall Street Journal, FastCompany, Forbes, and Entrepreneur. You’ve got to put weeks of research into your business venture to gain the knowledge necessary to support your business model. Every sentence in your business plan must be factual yet lead the investor down a path towards you. Investors have been there, done that. They are serious about their money, and are looking for the greatest return. If you don’t live up to your promise of the greatest return, you are going to suffer the consequences in the future. Check out the article from FastCompany.com, ‘The Startup Scarlet Letter’ where Austin Carr talks about new companies who believe they’ll revolutionize an industry, but put down their competition so incredibly that they end up looking simply ridiculous. Here’s an excerpt:
CLAIMING YOUR PRODUCT WILL REVOLUTIONIZE THE INDUSTRY? DISSING YOUR COMPETITORS? COMPARING YOURSELF TO STEVE JOBS? IF YOU DON’T LIVE UP TO YOUR OWN HYPE, YOU MIGHT END UP PERMANENTLY SCARRING YOUR BUSINESS. TAKE IT FROM COLOR’S BILL NGUYEN AND BLOCKBUSTER’S JIM KEYES.
Your Company’s reputation can make or break you, so keep your comments respectable, but supported with facts.
Name your sources and make sure that they are reliable, because your investors will be checking your sources, too. Keep everything in your business plan transparent so that everything that you have written can be checked and double checked too. If the numbers don’t add up, investors probably won’t be eager to invest. Check your numbers, and always get them verified by a reputable CPA firm. Distorting your worth will hurt you in the long run, so you’ve got to be completely honest and transparent to your accountants.
As for inventors, college professors, engineers and scientists, please understand that investors don’t want to invest in research. Your business plan has to be about Product Development or research that is leading to a specific product or service that you can take to market. Your investors want a product or a service that they can sell, and want to know your success in making this happen recently. Your success in moving a product or a service just might be your ticket to your next research dream project, but investors want the payout.
How do you say what you want to say in a business plan? Well, we’ve established that you need to use business language, based in facts and reliable statistics, sprinkled with admirable quotes and respectable sources, and hopefully a patent or two. You need to think about your investor as the audience, and remember that their goal is the payout in the end. You need to put in charts and graphs that are easy snapshots for investors to read. But what if your business venture is highly technical and complicated? We realize that you are an expert in your field, but if you don’t make your business plan easy to read, you are going to lose your audience. To be safe, make sure that your business plan can be understood by someone in high school. As important as the details can be, the more technical you get, the more likely it is that you will lose your investor’s interest. If your field is not their area of expertise, all those technical details will sound like Charlie Brown’s teacher saying, “Blah blah blah, blah blah.” Be detailed in your product or service section, then refer to the process, technique, or apparatus as a one to two word name (or an acronym, possibly something easy to say or sound out) to keep it simple.
Believe in yourself and your vision. When you actually do shake hands with prospective investors, show a quiet confidence that radiates success. Your business plan may be your introduction, but it is your in-person meeting that just might close the deal. You need to reek of professionalism, be ready to represent your business venture, and show enthusiasm for the future. Practice role playing with someone who has been there, so that you are ready for the real thing—something we’ve done for many of our clients which has paid off for them! Make sure that you dress respectfully (maybe an Armani suit isn’t necessary, but definitely leave your old Birkenstocks at home). Now, make it happen!
The Boardwalk Advisors team provides expertise in packaging and positioning companies that are currently experiencing growth and ready to attract capital. We listen to you to gain an in-depth understanding of your product and vision for the future growth. Then we combine our collective 81 years of experience, thousands of hours of qualified research, and extensive library of business models to develop your vision and create a customized set of tools just for your business.