I started my business in 2001. At the time, I wasn’t sure how I was going to make it. I left a company that had just dissolved and I wasn’t finding an equal opportunity anywhere. Nobody was beating the door down for a telecommunications sales person at the time and I was trying to figure our where I wanted to take my life.
I thought the best strategy would be to build up some recurring revenue, maybe take out some loans if needed and just build the company. I quickly realized how much it can cost to run a business and that it is often smarter to rely on other people with expertise in certain areas instead of trying to learn everything and make a ton of mistakes along the way.
Some key things I’ve learned over the years while I’ve gone to round tables, pitch events, spoken to potential investors, studies pitch decks, presented at trade shows and watched other people raise money for their companies.
I. The investor needs to see the product or company clearly. It can’t be in your head and regardless of how confident you are that you are going to do great things, they probably don’t know you and need to see it clearly.
II. Investors are often locked into investing in companies at different stages. The early your company is, the less investors are available. Pre-seed or seed stage investors could be individuals but for larger amounts they will likely be groups that will want to invest for 3-4 years and will look to see 10x or more in returns over that period. They are taking a lot of risk and will want to see returns that equal that risk.
III. Once you reach growth stage and have over $2M in revenue, all the options open up. There are a number of companies who will now be able to invest their funds capital in your company assuming you have all of the paperwork in order, can provide financials including a balance sheet, can show them how you are going to grow over the following months or years, and how they will likely get their money back. Are you going to raise another round of capital? Are you going to go public?
IV. Even if you get the money, they could take it back. In many funding agreements, if certain events happen or it becomes clear that you are not going to reach certain goals, an investor could pull out of their investment. If that happens, that could cause you to close your company. So, don’t raise more than you need and don’t set goals that are unrealistic or likely unachievable.
V. Diversify the risks by showing multiple paths to the goal(s). If there is only one way of getting there, or you are working with just one large customer or channel, that could be a deal killer.
VI. Investors are into politics and by politics I mean that they want to work with people they know, trust and that other people know and trust. If investing in your company is a good political move, they might invest in you even if there could likely be a reduced return or no return. Some investment funds, especially family offices, want to invest in people and solve societies challenges – and hopefully make money at the same time. Lots of money.
VII. The business plan is a living document. You can work on folders, powerpoints and other presentation material until you are blue in the face. It might be best if you get an investor or former investor to write it for you. Why? Because they know what investors want to see and what makes for a compelling investment presentation.
As I think of other items I’ve learned, I’ll add them here. I’m doing a good bit of reflection over the past few months.
Feel free to reach out to me at firstname.lastname@example.org with questions.