The 20 magic phrases that can win potential investors to your startup this year
So, 2022 has come and gone, leaving its mark, good or bad, on our businesses. Regardless of the economic challenges that came with last year and the uncertainties attendant new years’, your small business is still thriving and you believe it is about time to get your feet through the door and begin to pitch your business and ideas to potential investors in a bid to foster expansion in one way or the other.
Truth be told, pitching your company, business or ideas to investors, be they Bankers, Crowd Investors, Angels, Venture capitalists, Private Equity or even Startup–focused Investment Clubs, can be intimidating, especially when the fate of moving your small business forward rests in the cold hard cash in their hands or bank accounts. Perhaps, you have considered this one critical task for your business daunting enough that you have continued to put it off or you just keep praying that one of these categories of investors miraculously falls into your lap one fair-weathered day.
Well, guess what, they won’t, for so many reasons, at least, not just by magic or turning up the charm on your part anyway. So, while every investor will have their requirements, some being more stringent than others, and be looking for ideas, concepts, or business models that align with their personal, and business interests or strategies, here are the 20 magic words that will get potentials, even those who might at first not have an interest in your business fielding to have a chat with you about a partnership.
- Start–up the experience: Of course, a great majority of us are probably starting our first businesses and are still garnering the requisite experience worthy to call ourselves hardened entrepreneurs, however nothing wards–off potential more than when this is your first solo run. Is that a bad thing, you may ask, and the answer is ‘no’. But just like hiring companies these days search out employees with requisite subject matter experience, well, guess what, so do seasoned investors. So, if this is your first rodeo and you have only been at it a year or so, perhaps it might be best to stay at it a few more years to be able to argue, intelligibly, with even the most hardcore of investors and possibly win their trust and investment.
- Management Quality: Not only does experience matter, but that of your team. The reason why investors want to see, not a one-man business, but a team of eggheads vested in the different departments that make your business tick. So, as much as the idea of finding a business partner or partners may seem repulsive to you, guess what you will eventually need them, might as well grit your teeth and accept the fact that you can’t go this alone. You need people with as much if not more experience than yourself to help your business grow and find those all-important investors.
- A Minimum Viable Product (MVP): Having a product is no longer the story for many an investor. Everybody has a product, but the question is how tried and tested is. Have all the glitches in business delivery and customer satisfaction been worked out? Is it something feasible and physical the investor can feel, see, touch or taste to determine for themselves if it is worth staking a claim to? If the answer is ‘no’ then perhaps you are not quite ready just yet.
- Product Life Cycle: So, it is not just enough to have an MVP, investors want to know what its lifecycle is. In essence, the longer the lifecycle, or in other words, the more often a customer has to use or come in contact with your product or service, requiring such things as after-sales service, etc, or anything that makes that one product or service bring in residual income asides the initial purchase, the more attention an investor will offer you.
- Customer Quality and Quantity: Nothing excites a potential investor more than when you not only have a nice long list of existing clients to show them but also show that they are happy to continue using your product or service, maybe even at a higher charge. Now, what potential investor can say ‘no’ to that kind of potential?
- Serviceable Obtainable Market: Contingent on existing customer quality and quantity, might you be able to show, from your existing business model and inflow of course, that a much larger Serviceable Obtainable Market still exists out there for the taking, and you will most probably have investors queuing at your door, cheques and wallets in hand because the more astute of them know that this spells the next magic words…
- IPO Capability: Ah! Sweet words for even the less canny investor for certain. Nothing gets an investor’s hands itchy to own a piece of your business when you show and can prove your business has IPO capability, why, you may ask? Simple. Most investors are looking for 10x their returns and nothing brings much better, faster, or easier.
- Operational Stability: IPO–able aside for a minute shall we, before getting to the top of the business food chain, investors want to see that your business has a certain level of stability, not just staffing turnover and market vagaries, but in the most important fact of your business, the income statement. Thus should you run a seasonal business, perhaps it is time to chalk up the number with an added product/service or two during the down seasons, no investor likes to see one-off sporadic inflows and then continuous outflows. It kills the vibe!
- Thus, Continuous Sales and Profit Consistency: Need to be a buzzword in your business or else you may find nothing but uninterested investors no matter where you may turn.
- This thus leads to having A Diversified Product/Service Portfolio, because nothing badger the eyes and ears of most investors than a mono–product company. The risks of a single product are just too great!
- Quick Market Penetration and Adoption: Perhaps this should come right before IPO-able because if your business or idea cannot penetrate your target market quickly, remember you have competition lying in wait and readying to pick up your slack, nor does it enjoy quick adoption to keep the wheels of business progress churning speedily and loudly then guess what? Yep, you probably already have – potential investors, out the door!
- Solid Sales and Distribution Structures: It’s a no–brainer. To be able to move products quickly and engender quick adoption, you need to show you have an unshakable distribution structure, be it through the internet or third-party brick–and–mortar resellers. If unwholesome delivery time lags still exist in your business then it might be time to either tighten it up or explain to a potential investor why you think his/her money can help your business improve on this, with considerable returns to them of course.
- Healthy Profit Margins: Of course, making N0.50k profit on a product is still profit, but what investor do you know would like to take the risk of having the all too dreaded word – competition, come into the fray and undercut your pricing by even 1%? So, nothing assures an investor his/her money is in the right business when you can show that it would take, but an act of God, to affect your profit margins. You are certain to win many of them indeed.
- Stringent Competition Analysis: In the eternal words of an anonymous investor, “their market is always there, show me your competition. It is they I worry more about…” Thus, nothing calms the hearts of potential investors when they know that you know who your competition is and what makes your offering unique, and worth buying theirs.
- Stringent Financial Reporting & Projections: Let’s face it, what investor would give you the time of day if he/she finds you are terrible at managing your company’s finances or make bloated projections, perhaps in a futile bid to impress? Remember the Quality Management part? Same infers, and thus maybe it is time to partner with or engage the services, of a seasoned bookkeeper. Your potential investors will probably think more highly of you.
- Patents and Intellectual Properties: Remember the guys lying in wait to pick up your slack? Yep, the competition. Even unpatented software can quickly become theirs, and your potential can quickly become their potential. So, should you wish to keep investors interested in helping see your business grow, proclaiming legal rights to intellectual property always does the trick.
- Bottom–up Market Analysis: Most entrepreneurs are quick to make the statement, ‘If the market size is X large, and we are thus able to corner but 10% of it, then we’ll be in the green for the rest of our days!’ Well, guess what, investors, or at least the more seasoned and ‘moneyed’ of them, are no longer appeased by such novice talk. The reason is, it is one thing to be optimistic before a business hits the ground, but quite another when it finally does and everyday realities come reeling in. So, to get investors better interested in having a serious conversation with you about putting some money down, nothing spells a better experience than when you can show them a bottom–up analysis starting with the most pragmatic, disciplinary approach, stemming from your current business inflows, market positions, customer insights and product testing/maturity.
- Co–Investors: Co–investors?! But should this not be a turn–off for most investors, you may scream? It is quite the opposite. Showing potentials that you have other interested potentials, only tells them one thing, if someone out there is taking investing in your business seriously, why perhaps they should too?
- A well-written Business Plan: Okay, it’s all nice and nifty if you can pull off telling investors how your business has all of the above mentioned in 5minutes or less, but you must remember, most of these types are quite busy and have some many things pulling at them and in so many directions. Being able to offer a properly drafted business plan not only helps them better picture your ideas later when they are less busy, but it also offers them something to show to others particularly when you are not looking, Remember, business is interconnectivity. A potential may not invest for whatever reason but a well-written business plan can always be passed along to someone else they think might have an interest in your business. So, stay prepared and have it readily available online where you can.
- A catchy Pitch Deck: Sometimes, all you need to say is, ‘I have a pitch deck and this will only take 10–15mins of your coffee break’. Now, who wouldn’t give you 10 minutes of their time especially if you are buying the coffee?!
Now, be sure to read the article on pitch decks and your wealth of knowledge to Series A. There are lots of useful nuggets that will benefit you.
Best of luck in 2023.
Brain Essien is a business consultant, with expertise in crowd/start–up funding, business plan/proposal formulation/design and pitch decks.