Young: Ways to make you, and your venture, more investor friendly

Columnist Joel Young offers tips on how entrepreneurs can appeal to investors.

I have spent many hours over my career working with entrepreneurs who have wrestled with the notion of seeking investment for their entrepreneurial dream from a variety of sources and experiencing the pain of trying to get their presentation “ just right” with the hope of  nailing the investment of their required dollars.

When I recall about what it takes to succeed and investors on what they look for when they invest in an entrepreneurial startup, I find myself always coming to a set of “fundamentals” that really hasn’t changed all that significantly over the many years since my journey in the entrepreneurial world began from back in the late 1980s.

Passion is critical and your excitement has to be intoxicating enough (above and beyond your business plan and your perception of an excellent venture idea) to make others believe in your dream just as much as you do.

This will also be the key to finding great employees, connected board members should you need and generous funders.

Once you take that step in the direction of the entrepreneurial world, you’re on a 24-hour call selling your concept, its viability and it’s future.

A convincing case can only be delivered by a true believer, investors do want to fund greed.  They do want to fund a revolution – your passion, my friends will make the difference generally.

Want funding?  The quality of the management team you have assembled will make or break you.

Your top employees’ credentials show that you’re ready (or not) for whatever the economy, markets, or eventually the competition throws your way for the new venture.

Your new team also needs to be flexible – able to adapt to wherever the new company’s perceived growth may take you.  This is particularly key in the “ seed-capital” phase when investors bet on unproven venture concepts based on their “gut-feel” about a team – your team.

Your big idea—your concept—needs to be different and useful.

Investors generally want to fund firsts, not variations on a theme.  They also want to fund winners understandably, companies that are positioned to get major market share quickly and with the potential for a good story to tell thereafter.

For example, your venture idea is defensible, difficult to duplicate or compete against as is patent-ready ideas.

Your insight into the market you wish to enter is paramount for the investment community.

Become an industry expert, verify that no one else is in your way and explore what has kept others from the breakthrough you are anticipating.

Master your competitive landscape and show to the investors how your new venture is destined to benefit from economic and market trends in front of you.  But, also you will need to

have some sense of what lies ahead on the horizon so that your new entrepreneurial dream isn’t about to become obsolete shortly after hitting the marketplace.

Simply put,  the investors you are courting want to know that you, not they, have covered all the angles.

So, let’s go now into the ever-popular, ever-present, business plan.  This road map has taken many a soul over its hills and valleys to success and failure over the years of its importance and relevance and remains at the cusp of an entrepreneurs entre’ to investors’ thresholds.

The business plan shouldn’t merely talk about your new dream, but how you’ll make it grow and make money for the investors.

The executive summary is the single most important component and requires the plan to be “boiled down” to an incredibly clear 2 page document that hooks the readers in to your venture needs.

Complementary to an excellent executive summary and I have seen many a good business plan fall by the wayside without this next ingredient.  You will absolutely require a great venture management team description – your team’s experience and track record needs to comfort potential investors including your bankers.

Honest financials also make a difference – a complete competitive analysis and reasonable assumptions should support your claims.  Breezy optimism is a definite turn-off to your investor s.

Entrepreneurs are often guilty, in their eagerness to get started building their company, of seeking out investors of all kinds before they are prepared to present their deal or carry on effective negotiations.

Angel investors, for example, often have a great deal of business experience and can ask the kinds of probing, difficult questions that can quickly puncture inflated projections or poorly thought out strategies.

Also, and this will bring a smile and knowing nod to your face, entrepreneurs invariably emphasize bringing money into the new venture; investors are quite reasonably interested in getting capital out of the company they have invested.  Hence, unless an entrepreneur can convince an investor that a lucrative exit is possible within a reasonable timeframe, the deal is likely not to be embraced and get done by that particular investment source.

As an associate of mine frequently says to our clients, don’t try and wing it with angel investors. It doesn’t work.

Lastly, be aware that decisions made by potential investors for entrepreneurial new ventures are not made, in my opinion, on a cut- and-dried basis.

Often, investors, particularly, private ones operate in an environment where the crystal ball can get extremely cloudy at times and must rely on their instincts honed through the many years of being on the firing line within their own worlds.

Therefore, my existing and aspiring entrepreneurs of the Okanagan landscape, be the best that you can be in your research, preparation and venture planning in order to make you investor-friendly.

Joel Young is an entrepreneurship educator, consultant and coach and the Founder of Okanagan Valley Entrepreneurs Society

 

eagleyoung@shaw.ca