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7 Steps Entrepreneurs Should Take Before Going to Investors

Discover the 7 crucial steps entrepreneurs should take before seeking investment, ensuring preparedness and success.

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7 Steps Entrepreneurs Should Take Before Going to Investors

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  1. 7StepsEntrepreneursShouldTake BeforeGoingto Investors Haveyouinventedsomethingamazing?Doyouhaveauniqueidea? Youmightbethinkingthatitistherightmomenttosetupyour companyandpitchyourideato investors. Wait!Don’trush.Planningandorganizingarethetwomajorfactors beforeyoupitchyourbusinesstoinvestors. Ensureyourideaiswell-builtandsoundandalsoyouarefocusingonall theproposaldetailsthatinvestorsmightaskabout.Forexample,you shouldbeabletoarticulateyourvisionfortheshort-andlong-termfutureofyourbusinessandhaveasolidunderstandingofyourtarget market,competitors,suppliers,andtargetaudience.Besides,youneedto beclearonwhatkindofinvestorpartnershipyouwant. Inthisarticle,wewilldiscussthesignificantpointsyoushouldthink aboutbeforepitchingyourideatoinvestorsandprovideindicatorsthat youarereadyforthisstep. StepsEntrepreneursShouldTakeBeforePitchingtoInvestors Entrepreneursoftenfocusongettingfundingfortheirventuresand choosingthekindofinvestor—venturecapitalistsorangelinvestors,for example—thatismostappropriatefortheirventure.Findinginvestors, though,isjusthalfthefight.Usingthatfundingtogrowyourbusiness smartlycanensureyourvictory.Thesearethe7majorstepstotake beforegoingtoinvestors: 1.UnderstandYourNeedsandWants You needto beclearon whatyouexactlywant.Areyoulooking for fundstoacquireassetsliketalentandequipment?Ifthisisyourneed,

  2. youshouldconsidergoingforapartnerwhoalreadyhasthoseresources andlookingforwardtoworkingonarevenue-sharingbasis. Youwantaninvestorwhocanguideyouinyourbusinessoperations, apartfromprovidingfunds.Towhatextentdoyouwantyourinvestors tobeinvolvedinyourcompany? Beforeyoudecidetomovewithanyinvestor,makesureyouare comfortablewiththeconnectionbysettingtherightboundaries.Give youropiniononallthesequestionsandbereadywithyouranswers beforegoingtoinvestorsforinvestment. Itwillalsohelptheinvestorsunderstandyourneedsandyourexact demands,andyourchancesofsuccesswillincrease. DecideYourAskAmount Generally,itissaidthatyoushouldraiseatleast20%morethanyou need,butnotmorethantwiceasmuch. Itisafactthatraisingmoremoneythanyouneedcomeswithmany disadvantages.Thedrawbacksofrunningoutofmoneyoutweighthe consofhavingtoomuch.Ifyougetexcessivefunding,itcanleadto yourteamhavingalotofunnecessaryexpectations,whichwillincrease yourpressuretocomeupwithresults. Itmayalsoencourageunnecessaryspending,fosteringacultureand behaviorsthatultimatelyleadtothecompany'sfailure. You shoulddoproperresearch,besureofhowmuchyouneed,andbe preparedtocommunicatebeforeattendingyourinvestormeeting. HaveaWell-maintainedCashFlow Youshouldhaveawell-maintainedcashflowinyourcompany,evenif itisnotsufficienttogettheinterestofinvestors.Investorswanttomake

  3. surethatthemoneyyouareaskingforisusedtogrowyourbusiness,not justpayyourrentandbills. Investorsbelievethattheirmoneyshouldbespenttoearnmoremoney. Theywanttobesurethattheirfundsarebeingusedtoexpandabusiness orproducemoregoodstogetareturnontheirinvestmentratherthanfor rentandenergycosts. Whenyoudonothavethepropercashflow,investorswillseethat, despiteyourbrilliantideaandsoundbusinessplan,youdesperatelyneed funding.Sincetheyhavetheopportunityto dominateyoufinancially, theycanputyouinadifficultsituationandtrytotakeadvantageofthe situation. Doyourhomeworktoassureyourselfthatyoudonot becomefinanciallystressedbecauseyoudon'twanttobeinthissituation.Before lookingforinvestment,makethemostofyourlittlemoneybyusing innovativewaystogrowthecompanyasmuchasyoucanwithout outsidesupport. 4.DoYourResearch Researchisamajorstepbeforeyouapplyforfunding.Afteryou understandyourneedsandtheamountyoudo,dopreliminaryresearch onthekindofinvestoryouarelookingforandwhothoseinvestorsare. Alwaysconductyourresearchbecauseyoucanbe sure thatprospective investorswillbelookingyouuponwebsites,socialmedia,andtrade journals. Beforeapproachinginvestorsforyourbusinessfund,learnfromand connectwiththematinvestorseminars,conferences,andevents.By takingthetimetoresearchyourpossibleinvestors,youcanbetter understandtheprocessofraisingmoneyandthekindsofpeoplewhoare willingtoinvest.Youwillbeabletofindoutmoreaboutpotential partnersandtheirinterests.

  4. BuildaStrategyandaVision Everythingbeginswithagoal!Youshouldbereadytogofarwith potentialinvestorsinthefuture.Whilemostofthepointsarefocusedon now,thisismoreaboutyourcompany’sfuture. Createyourcompany'sstrategicgoals,whichyoumusthaveoutlinedin yourbusinessplan,inadditiontothecorporatevision.Forexample,will youcontinuegrowinganddevelopingthecompanybyyourself?Willyougoforadditionalpartnerswhileaddingnewgoodsandservices? Howdoyouplantogrowshortly? Thesearesomeoftheprimaryfactorsthatinfluencehowyoudesignand introduceyourstart-up;hence,youshouldalreadybethinkingabout them. FindoutYourBurnBurnRate Afteryou'vedecidedonyourfuturegoalandthemilestoneyouwishto reach,youshouldfocusonyourburnrate.Theburnrateisthetotal amountofmoneyyou'llneedtospendtogetthere. Theamountofmoneyabusinessloseseachmonthafterdeducting incomeisknownasitsburnrate.Forstartupsthatdon'thaveany revenue,themoneyspenteachmonthistheburn rate.Theoperational runway—thetotalamountofmoneythathastoberaised—canbe ascertainedwiththeaidoftheburnrate. Asanentrepreneur,youshouldnotoverestimateyourabilitytocomplete anytaskinagivenamountoftime.Instead,youshouldsetreasonable goalsforyourbusiness.Tomakethishappy,makealistofthe individualsyoumayreasonablyexpecttogrowwithinthefollowing12to24monthsandthinkaboutthenumberofpeopleyouwillneedtohire toachievethegoal.Withthis,youcanhaveaclearpictureofhowtouse thefundsyouraisefrominvestorsandavoidunrealisticexpectations. DetermineYour Value

  5. Afteryou'vedecidedhowmuchmoneytoraise,yourvaluationwillbe fourtofivetimesthatamountbecausemostcompaniesareaskedtogive up20to25percentoftheirsharesineveryinvestmentround.Thereare numerousvariablestoconsiderwhenyoudetermineyourcompany’s valuation,suchasyourmarketandthestateoftheeconomy.When decidingonthevaluation,thebestrecommendationistofocusontwo factors. Initially,observeothercompaniesinthemarketthathavecompletedthe samekindsofagreementsandchecktheirvaluations.Rememberthat venturecapitalistsaretryingtofindthebestinvestment,sopriceyour venturesohighthattheriskor rewardisoutof reach. Youcansetatargetquantityofsharesthatyouarereadytosell.Planout yourdilutionforthenextseveralrounds.Atthispoint,decidehowmuch ofyourcompanyyouarewillingtopartwith—15percentor25percent—andbuildyourvaluationaccordingly. SumUp… Gettingfundingforyourideasislikeadreamcometrue.But youneed to havepatience.You shouldhaveaproperlymanagedcashflow.Make yourplanclear,outliningyourvisionandgoalandtheinvestment amountyouarelookingfor.Besides,bereadytorespondtoquestions frominvestors.Yourfoundationshouldcomefromyourpreliminary studyandbusinessstrategy,butit'sagoodideatogoovereverything againtomakesure youremembereverything.Havingtheanswersat yourfingertipswillshowinvestorsyourprofessionalism,depthof expertise,anddiligence. That’sitfornow!Allthebestforyourbusiness.

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