Blog: No Need to Be Frightened

Facing the Investors

No doubt, a new entrepreneur may have many traumas, but one that can be avoided is that caused by facing investors for the first time who are strangers. I have tried following below to present what to expect to be better prepared. Most of all an entrepreneur and team should believe in their dream and be prepared to know in depth what they plan to present.

Based on my experience what an entrepreneur should expect when facing investors will start with credibility in the team. The more depth the employees can add to their roles, the better. Individuals who “have been there” (especially in a successful start-up), coupled with a board that has experience and advisors with specific experience related to the company’s requirements, is very important to investors. Additionally, it is very important that the CEO and other members of top management have open minds and be good listeners.

Alert: In any discussion with investors, company management must be very careful not to be defensive or “put the questioner down.”

There are tips on dealing with an investor, a number of which follow:

  • Always present the market need first
    • To get the investor’s attention
  • Investors will ask if any personal cash is put in by the founder
    • It helps if some in indicates believing in the potential
  • Make investors comfortable
    • Extends the financial projections to show when an ROI occurs
    • Credibility breeds trust, trust breeds comfort, and comfort brings investments
  • In any forecasts, it is wise to avoid plans that would put the “Guinness” growth records to shame
  • How to use the funds, requesting
  • The company’s motives should be financial
    • Investors won’t relate, otherwise

Logic from investors, “If you don’t want to make money, how can I make money?”

  • Get enough money the first time
    • Obtaining further capital will cause the company to pay dearly, if it falls short going forward
  • Use the best” storyteller” in the company for investor presentations
    • It doesn’t have to be the Founder/CEO
  • Make investors believe
    • They want to – that’s why they’re listening
  • Make a plan for growth
    • That’s the only way to get a return on investment(s)

There are reasons why an investor won’t buy the business plan:

  • No passion
    • “If you don’t believe first, how can I believe?”
  • It’s an opportunity and not really a business potential
    • Many ideas aren’t supportive of a vision
  • No plan and/or exit plan exists
    • Which makes it difficult to get anyone’s attention
  • Market penetration is not convincing
    • Not a big enough market to have enough sales for an investment return
  • No proprietary advantages
    • Makes you one of the “bunch”
  • Valuation of the company is not credible
  • The piece of the company for the investor is too small
  • Too ambitious plan (i.e., $15 million plus revenue in the first year)
    • Kills credibility
  • Scheduled bank borrowing is naïve – too soon in the plan
    • Credibility problem again
  • Market growth potential insufficient bad marketing plan
    • Can’t support a business
  • Payoff for investor is not good enough
    • All investors have some criteria
  • Team is weak
    • People required to make it work

The Investor

There are various feelings in an investor’s gut and they look for it.

Following are three:

  • Market! Market! Market!
  • Team! Team! Team!
  • Comfort! Comfort! Comfort!

Investors are seeking positive trends for entrepreneurs in presentation. For instance:

  • Entrepreneur coachable- avoid arrogance
  • Willing to give up CEO position (at some point)
  • Acceptance of outside help
  • Willing to give up fair amount of equity
  • Willing to take risk
  • Better understanding of managing a business

In summary, for the steps for an entrepreneur along the way:

  • The first question to ask and answer is: “Is it a business opportunity?” Companies can easily be formed but a business is when founders and investors are getting a return on their investment
  • Then…believe in your dream.
  • Convert the vision to build a plan to build a business worth investing in.
  • Make “them” believe.

Alert: Are you ready to work 70 hours per week for several years to reach the payoff?

For more assistance in preparing for an investor. See blogs for information regarding the “Elevator Speech” and “The Presentation” for a presentation example, called Nuco.

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