How to convince investors to invest in your business? Fundraising is not just about securing a sum of money for your business’s development. It is about winning the trust, and support of individuals that are putting money into your business or product. Once you are able to get the investors to believe in your business and its growth potential, securing the actual investment will eventually follow suit.
Whether you are a startup that just wants to bring its idea to life in the form of a product, or a growing enterprise trying to push your business to the next level, almost every business will need to approach investors sooner or later. With that said, convincing an investor to commit their funds isn’t easy.
An investor is the one taking the risk by investing in your business, so it is your job as the business owner/decision-maker to convince them that their investment is in the best hands. Most businesses fail to make a compelling case in favor of their company when pitching to investors and fail to secure the required funds from them.
So if you are in the process of raising funds for your business, either to get it up and running or to climb the growth ladder, then we suggest you keep reading. Because in this article, we will explain in detail how to convince investors to invest in your business.
The Ultimate Guide To Pitch Decks
Here is the content that we will cover in this post. Let’s get started.
- 1. How exactly can an investor help your business?
- 2. Mentorship
- 3. Network
- 4. Overcoming obstacles
- 5. A Partner In Your Success
- 6. How to convince investors to invest in your business?
- 7. Have a solid business plan (for startups)
- 8. Have clear goals for how you want to use these funds (for startups and mature companies):
- 9. Showing the financial performance of your business (for existing and mature firms):
- 10. Offer stock that pays dividends (For mature companies):
- 11. Prepare a forecast model (for startups and mature firms)
- 12. Research your potential investors (for startups):
- 13. Conclusion
How exactly can an investor help your business?
Before we explain how to convince investors to invest in your business, it is important to understand how they can actually benefit your business apart from funding. While it is obvious that an investor can provide you with the much-needed capital that you can use to grow and improve your business, they can and should also help you in other ways. Which is often where most of the value of their investment actually lies. So without further ado, here are some ways an investor can help.
Even if investors are willing to invest in your idea, they don’t want to lose their money, so they will also be willing to share their advice on being a success, or at least not lose their money. Having mentors as investors who are willing to share their knowledge with you is good for the entrepreneur. It can provide a huge advantage over the competition. In fact, many startups give equity to key advisors without them even bringing in capital.
Apart from providing capital, investors can introduce other key people, and expand your network. One of the best things about investors is that they know a lot of people who can help you in different ways. Including other investors, executives, and important hires, customers, and distribution channels.
There are many reasons why not every investor you pitch your business idea to will end up investing in your business. Still, they can put you in touch with people who might be interested in your type of business. So, don’t be afraid to tell investors about your ideas whether you think they will be in or not.
See How I Can Help You With Your Fundraising Efforts
See How I Can Help You With Your Fundraising Efforts
A great thing about having someone invest in your business is that they can help you get past financial problems so that your business can grow and develop.
Startup investors have also often run, funded, and sold companies themselves. So, they know how to navigate issues when they pop up or even preempt them.
This means they might choose to ignore things like credit scores in favor of a business’s good ideas and growth potential. That doesn’t mean you won’t have to make a strong case and show real potential, because the best investors don’t like taking risks.
A Partner In Your Success
An equity investment isn’t a loan (with the exception of convertible notes). This means that you don’t usually have to pay the money back quickly or in regular monthly repayments, with interest. They may also participate in additional funding rounds or bridge rounds to keep fueling your success.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
How to convince investors to invest in your business?
Now that we’ve covered some of the fundamental reasons for seeking an investor, let’s look at how to convince investors to invest in your business. There are various strategies that come into play when trying to convince an investor, depending on the size and growth stage of the business.
Here are some of these different strategies for how to convince investors to invest in your business.
Have a solid business plan (for startups)
At the earliest growth stages, startups rarely have a solid product, market share, or a revenue model to prove their business’s worth. However, if you have a solid plan of action in the form of a business plan, it increases your chances of convincing the investors to invest.
Your business plan is a very important document that shows investors that your startup is worth the risk they are taking by investing in it. Your plan should spell out your business’s goals and objectives and show how skilled your team is in what they do, it also shows investors that you know your target market well. It shows that you’ve thought through all of the challenges and have already planned solutions and ways to reduce risks.
Your marketing plan is an important part of your business plan. It shows how big your market is and how likely it is to grow. It should also show how trends affect sales and your plan to make this commercially profitable. This is where pricing, marketing, and distribution strategies come into play.
Make your business plan easy for everyone to understand by presenting it in an interesting way that will help you stand out.
It’s important to keep in mind that investors who already know your industry and market may be more likely to invest in your business because they are already familiar with it and feel comfortable with it. Keep in mind that their knowledge could lead to more specific questions for you, so be ready to show off your mastery of this subject.
Have clear goals for how you want to use these funds (for startups and mature companies):
Investors are interested in gaining a detailed understanding of how you intend to use the investment. Will you put their money toward the cost of capital expenditures? Or put it in research and development? Covering the costs of legal representation and accounting? Or to pay for the salaries or marketing.
When done early on, establishing capital efficiency may assist you in the development of appealing to investors. It is important to be ready to explain to investors what milestones you want to achieve, as well as the results that are anticipated.
Showing the financial performance of your business (for existing and mature firms):
We’ve already talked about how investors want to make money. It’s up to you to show them that your company can help them reach that goal. If your business has been operating for a while, you need to show that it has been doing well financially.
The financial statements of your business tell a lot about how you run it. Investors are especially interested in your cash flow, how much debt you have, and how much equity you have. Having money in the bank shows that you are ready for problems you didn’t expect and that you can make the most of new opportunities.
Good cash flow is a sign of a company that can stay in business for a long time. This gives investors confidence that you can stay out of the “red.” On the other hand, debt obligations mean that cash is used to pay off debts. During slow months, you might not be able to pay your employees and cover other costs.
Investors are also interested in your company’s equity. In case investors want to buy shares in your company, they’ll look at your financial statements to figure out how much it’s worth to shareholders.
Offer stock that pays dividends (For mature companies):
Give your investors a stock that pays dividends if you want to convince them to invest in your business. Your potential investors are much more likely to invest if they can get dividends right away and the package is well put together. Many prefer regular income and knowing that they get returns back quickly.
In your package, be clear about how much you expect the investors to invest and how much they can expect to get back in return. Also, make sure to show sample reports. Investors want investments that can’t go wrong and give them returns right away as well as in the long run.
If your stocks pay dividends, investors may be more likely to buy them. This is because your stock offering isn’t limited to company equity, which only has value when the company is sold. By giving investors stocks that pay dividends, investors are attracted by the cash flow returns they get right away.
Offering quick profits rather than long-term ROI may make investing in your company more attractive to investors. But for this to work, you need a clear plan and timeline for how you will pay the dividends.
Note that this can vary widely between the types of investors you are approaching. Such as angels versus VCs or private equity firms.
Learning how to prepare for investor meetings is a critical part of the fundraising process. Check out this video I have created explaining how to deliver a compelling pitch.
Prepare a forecast model (for startups and mature firms)
Show investors that you have not only planned for growth but can also predict it. You should be ready to show how your business model will help your business make more money, and the value of your company (and its stock) will keep on growing.
It is important to have a forecast model that is clear, easy to explain, scale, and as detailed as possible. Focus on money and market issues in the forecast because these areas are most intriguing to investors.
A reasonable forecast model helps investors figure out how well you know your market and how likely it is that you will be successful in that market.
Your model should be based on real data and show enough growth and revenue to keep investors interested and convince them to invest. Be ready to talk about how you’ll reach your goals.
Consider giving both cautious and optimistic forecasts to show different ways of looking at things. Forecasting is an ongoing process that needs to be looked at again and again.
The more up-to-date your projections are, the better you’ll be able to make strategic business decisions based on them. Not to mention a more current forecast model will help investors in making their investment decisions. That’s how to convince investors to invest in your business.
Research your potential investors (for startups):
If possible, do research on prospective investors before contacting them. You’ll save time by concentrating on the investors who are most likely to be interested in your investment offer.
Perhaps they already have an investment portfolio. If this is the case, you should examine the projects that have successfully attracted them and look for common themes. Finally, you want to understand the priorities of a potential investor so that you can personalize your presentation to their interests.
Being able to secure investments quickly can often mean the difference between how well your company can grow and achieve its performance goals. There are no hard and fast rules to winning over an investor. The most important thing is that you know your product and how it helps customers.
You also need to ensure that your business plan is strong and that your chances of success are as high as possible. However, how you communicate with investors has a lot to do with whether or not they ultimately choose to invest in your business or not.
Follow the tips set out in this article and you’ll understand how to convince investors to invest in your business.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.