A seasoned investor will tell you that funding & investors are the lifeblood of any venture. For this reason, entrepreneurs are always on the lookout for funding. The best way to approach investors is to do it as a businessperson would do – to make a profit. For example, if a startup is in the research and development stage, the idea may not be very marketable, but an entrepreneur knows how to make a profit in the medical laboratory industry. Investors need to be reassured that there is at least some tangible product to test and trial; the company must have its own products lined up and ready to sell; and it must have plans for how to quickly and efficiently raise capital to take it to the next level.
For investors, the most attractive traits to look for are solid leadership, solid management team, and strong growth plans. These are attributes that would assure investors that the business was headed in the right direction. Good leadership shows up when you talk to funding managers or potential funding partners. Additionally, great management teams will help create a sustainable pool of cash that will continue to come in year after year.
Another key factor in finding good companies for funding is to have a good understanding of the current investment climate. The past few years has been difficult for the small business owner. Many companies have gone out of business or have become very public. Investors need to know that this is not an easy time for entrepreneurial startups. On top of that, many new businesses have failed in the past because they were over-crowded and unable to keep costs down to a reasonable level.
Many venture capital firms now categorize startup costs based on a monthly basis. If you are prepared to invest large sums of money into a company that meets these criteria, you can expect to pay quite a bit of money in fees to funders every month. In order to get the most value for your dollar, you should develop a good business plan. With this in mind, make sure you understand what types of expenses are allowable, as well as those that aren’t.
While you are actively seeking funding & investors, don’t forget the cost of dealing with private investors. Keep track of how much each contribution is, and be prepared to provide yearly financial information that will justify the fees. When sending this information to potential funders, be sure to stress why this is an exceptional case. Demonstrate that you have a plan for building liquidity, long term profitability, and a strong market for your product or service. While this may not always be sufficient, it should at least convince a substantial portion of potential funding participants.
It is important that you keep in mind that many investors are eager to invest money in growing companies that have the potential to be successful. However, the majority of investors are cautious when it comes to making a commitment to buying start-ups. As such, you should be prepared to wait for quite some time before you see any type of return on your investment. Because of this, you should also realize that there will be a significant lag time between the time you seek funding, and when you actually receive it. Because of this, do not spend too much time trying to get a large number of investors to invest in your company in the early stages.