Many business owners fantasize about landing a big venture capital investment to boost company growth. But is your business ready to approach investors? Some key questions can help you find out.
Is Your Business Plan Ready?
Professional investors will expect to see a fully fleshed-out business plan. It doesn’t have to be a multimedia extravaganza with dozens of PowerPoint slides, but it does need to present your company’s story in a compelling way.
Take a look at your plan and make sure it’s comprehensive, covering everything from manufacturing to marketing. It should present an accurate, realistic view of your business and your expected growth rate. Finally, ask several trusted advisors to review your plan to make sure it’s polished, concise, and complete.
For more on how to write a business plan, see Write a Winning Business Plan.
Do You Have Skin in the Game?
One of the most important things investors look for in a company is whether the management, especially company founders, has their own money invested in the company. Be sure to include information in your business plan about ownership stakes and how much founders have put into the company to this point.
Are Your Management Team and Board Complete?
Investors look closely at the track record of the managers who will be spending their money. They want reassurance that the managers are qualified to drive the company to success. Have managers led previous startup companies? If so, what was the outcome? A successful launch, an initial public offering, or perhaps a lucrative sale to a competitor?
If you’re a new entrepreneur, consider beefing up your management team before you approach investors. Many companies with first-time founders add a few top managers, or a chief executive officer, with experience in successful business launches. These more seasoned pros reassure investors that their money will be in good hands.
The same goes for your board, which should consist mostly of outside executives with experience in your industry, not personal friends and company managers. A strong, independent board signals investors that you are getting high-quality advice as you proceed in building the business.
Do You Have an Exit Strategy?
Remember that investors are thinking about “exits.” In three to five years, they’re hoping their money will multiply as your company grows, and they’ll be able to take their profits and reinvest elsewhere. Ask yourself how you envision paying these investors back. From company profits? A sale or initial public offering? This is an important part of your pitch to investors.
Are You Ready to Relinquish Some Control?
Realize that you’ll likely be surrendering at least part of the company’s ownership to investors in exchange for their involvement. These investors may well want seats on your board and may influence the company’s direction. Think carefully about whether you’re ready for this loss of autonomy.
Do You Know How You’re Different?
One weakness investors often mention in companies they turn down for funding is company managers who haven’t studied their competition. The founders think they have a great service or a groundbreaking new product, but they have no idea how it compares to what’s already out there in quality, features, or price. Be ready to explain why your business will beat the competition.
Do You Have Customers?
If you are pre-launch, at least be ready to provide signed letters of interest from potential major customers. If you have paying customers, solicit recommendation letters to present to investors.
Do You Have a Strong Elevator Pitch?
Successful fundraisers are able to get their company’s story across, fast. Can you explain clearly what your company does and why it’s exceptional in the marketplace in about 30 seconds or less? If not, practice and refine your pitch before taking it to investors.
Business reporter Carol Tice contributes to several national and regional business publications.