Business owners who want to expand their businesses or start new ventures seek out funding. Ideas are free. Implementing them can be very expensive. While many owners seek their funding through loans, others seek out investors to partner with and enable their vision. In this blog we will discuss what investors look for in a business and how you can successfully approach them with your idea.
Investment vs. Lending
Most Americans become acquainted with the concept of lending from an early age. Both credit cards and student loans are ubiquitous now, so they understand that banks and other financial institutions lend money to businesses expecting to be paid back over time with interest. Investment is different, though. And investors have different expectations of the businesses they partner with.
Investors give money to a business they feel is a good opportunity, and, in exchange, they receive ownership of part of that business. Essentially, they create relationships over time with the businesses they invest in with the expectation that they will make money on their investment. They don’t receive repayment. They share in the financial success of the company as it grows and becomes more profitable.
Business owners need to understand that an investor may want to do more than write a check. In fact, many investors have extensive experience with business management. They may have sound advice to give the company management or a network of other experts that they might make available to the business if the relationship that they form together is a good one.
Investors are people too. They have their own vision and expectations. Their primary goal in investing – what investors look for in a business – is an opportunity to make money. Other very advantageous things may result as well, but they can’t plan on that. They do want to see proof that any company approaching them for investment is successful, trustworthy, visionary, and hardworking. They also want to see good ideas. If your company has a track record of profitability, and you have a demonstrably good idea – you can approach investors with your requests for capital without fear.
What Do Investors Look for?
Investors will be judging anyone approaching them for capital. This is understandable. They want to make money, not lose it. So first you will need to prove that you are someone who they can trust with their money. How can you do this? You can present them with objective bonafides: data. While some investors will assess people more emotionally and make decisions based on their intuition, most will want to see your market research as well as documentation of your company’s past and current performance and financial sustainability.
Secondly, they will need to see a solid business plan. Your business plan should begin with a comprehensive executive summary followed by plenty of evidence that you’ve considered all of the angles of your proposal. This would include:
- Your target market
- Financial projections that include hard numbers backed by data
- Your marketing plan
- Sales channels and projections
- Analysis of your competition and any potential obstacles and how you intend to handle these
- A timeline of when you expect this venture to become profitable
Your business plan will also include your idea, of course. You will have to convey in detail why this idea is worth investing in. It doesn’t have to be a completely original idea. You do not have to turn lead into gold, but you will have to explain in detail why your company will be more successful in implementing it or what your competitive advantage is. It may be that the geographic area you are in doesn’t have access to your product or service. Or you might plan to modify a product or service in a unique way. It’s up to you to convince your investor that there is a market opportunity for your idea that is yet untapped.
Your business plan will need to convey all of the above in a concise but still compelling way. Investors see business plans all of the time. You want yours to stand out – to grab their attention and excite them with possibility. People respond to stories. Make yours memorable and convincing.
You will also want to specify when the investor will get a return on his money and what the terms are for the long-term arrangement you are proposing to create. This should include a clear investment structure so that no one will be surprised when profits begin rolling in or there is a change in leadership.
Ultimately, investors are people who want to make money. They want to invest in companies. What do investors look for in a business? A well-run company with a demonstrably good idea and a knack for outsmarting the competition. If you can show that this describes your company via your well-written and well-documented business plan, you will already have a leg up on your competition in wooing investors.
If you have questions about investors or business planning, we at Prometis Partners are always here to help. Contact us to talk about your ideas or concerns about your company. Let’s talk!