3 Tips on How Founders Successfully Attract Investors

Obtaining funding from Venture Capital and Angel Investors is often a critical step in the success of any early-stage company.  Venture Capital funding facilitates early-stage companies to grow and scale their operations by providing the necessary capital required to pay employees and continue development. Venture Capital partners also provide founders access to valuable mentorship and strategic guidance, along with access to their professional networks.   

0% of Venture Capitalists invest in firms they have never heard of.

Just like customers, investors must first know you exist in order to consider investing in your business.  One of the many roles of the founder looking for capital is to expand and leverage your Network.  First, keep your focus on your industry. Investors reduce their risk by concentrating on industries that align with their experience.  Make the time to attend industry events and meet other Founders/CEO’s and equity firms that are in your industry.  A warm introduction from a corresponding entrepreneur or Venture Capital partner sends a strong signal to potential investors.

1.      Understand the scope of what you are trying to accomplish.

Per research from the Harvard Business Review (Your 1 of 101, so now what), the odds of a founder securing funding from Venture Capital Firms are exceedingly low.  Their survey found that for each deal a firm eventually closes, the firm considers, on average, 101 opportunities. Twenty-eight of those opportunities will lead to a meeting with management; 10 will be reviewed at a partner meeting; 4.8 will proceed to due diligence; 1.7 will move on to the negotiation of a term sheet with the start-up; and only one will actually be funded.

2.      So how do you stand out as the 1?

To drive engagement, focus on key investor criteria before reaching out to your network.

• Develop a clear business plan and growth strategy:  Having a clear and documented business plan and growth strategy will be essential for structuring your business for success, bringing on board a strong management team, and for attracting venture capital.  Be sure to outline your plan, including financial projections, market research and competitive analysis if available, and plans for how the company will achieve its growth objectives. 

• Build your management team:  Early-stage organizations, frequently do are not able to demonstrate a proven track record of success such as solid revenue streams, a strong and diversified customer base, or a history of profitability.  As a result, Venture Capital partners weigh investment decisions heavily on the founder and their management team.  Leverage your business plan to develop your key executive management needs, and then leverage your network to build out a team well suited to drive performance and growth.  Resources are often already strained, so leverage multiple sources when building the team: full time hirers, personal mentors, and outside contractors.

• Clearly outline your capital goals:  Using your financial projections, calculate exactly how much capital you need to raise, and document how you plan to use this investment to achieve your goals.

3.      You have a meeting, now…

You are a lucky entrepreneur, and you have gained access to a potential Venture Capital partner. As you evaluate your approach and pitch, recognize your audience and keep your pitch deck focused on the top priorities of these early investors. 

• Founder/management experience-problem fit:  Founders and management teams that have experience in the industry they are operating in and a fundamental understanding of the problem they are solving tend to have an easier time raising funds. Investors want to see that the teams have the necessary insight into the market they are trying to disrupt. Demonstrating in your pitch deck that you and the management team have the skill sets to deliver on the business plan will go a long way to attract funding.

• Present your business model:  In clear and broad strokes, outline your business plan along with key financial projections.  The goal i

• Show the scalability of your market:  Using industry knowledge and market studies, present the upside potential of the market.  Venture Capital partners want to invest in startups that will thrive and eventually provide a return on their investment.  Your business plan should be built with this scalability in mind.

• Outline your ask:  Present a succinct summary of exactly how much capital you are asking the Venture Capital partner to invest.  This summary should include the planned usage of the funds with an outline of the ROI if available.  Do not provide a personal valuation of the business as part of the pitch deck.  Leave the valuation of the investment to the Venture Capital partner.  They will outline the requested ownership stake as part of the offer if they elect to invest and you can determine at that time if the terms of the offer are acceptable or require further negotiation.

Attracting private investors to your business can be a great way to raise capital and accelerate growth.  By taking the time in advance to prepare your business, you increase your odds of attracting a Venture Capital partner and securing a successful investment.