Everyone who makes a pitch to a potential investor is excited about his or her idea. That's a prerequisite. However, as a creator and seller of businesses, as well as an investor, I've learned that there's much more to raising capital than enthusiasm and ideas.
That's because ideas can evolve and change. As an investor, I'm most interested in your plan for turning your business idea into reality, and whether you are the right person to execute it. Unfortunately, the majority of business owners don't have that plan fully fleshed out when they present to an investor.
So what does it really take to persuade a person to put money into your business? Here's what I recommend.
Prepare two presentations. Investors see a lot of deal flow, or opportunities to invest their capital. To stand out, prepare a one- or two-page, high-level presentation that offers highlights to capture the investor's interest. Make sure to provide a visual summary of your financial projections, as well as one paragraph or less about what makes your product or service different from the competition. When you've succeeded in sparking investor interest, you can present your second, more detailed plan.
Be able to clearly explain why. As an investor, I want compelling and logical reasons for why you need money, what the opportunity is, and why the time to act is now. Why are you uniquely positioned to execute the idea? Why risk capital or spend precious time opening yet another pizza shop, or whatever it is you want to do? Expect to be questioned, and be prepared to defend your reasoning.
Show me that the idea has traction. Tell me what you're currently doing that proves you know how to make a success of your business. How long have you been doing this, and how much revenue has the business generated? Tell me how you built your first pizza shop and how you will replicate success in a second location.
If demand is outstripping your ability to make product, and you need capital to produce more, that's an attractive investment proposition. Spend time talking about the talent and experience of your existing team and be specific what additional team members are needed to execute your plan. Potential investors will also want to see a SWOT analysis (strengths, weaknesses, opportunities, threats), as well as background on similar businesses within the given market and how many have succeeded.
Be clear about the use of proceeds. Here's where I'll want a bit of color about how you're planning to use my money. Investors will want to see that you're going to invest in things that will drive a return on investment, such as people, sales, or equipment. So if you tell me you're doing $1 million a year and you want me to invest $100,000, tell me what you're going to do with that money—in 3 months, 6 months, 9 months, 12 months—to increase revenue.
The business owner who goes into a presentation prepared is a business owner who succeeds in raising money. Think like an investor and determine how you're going to make this money back for your backer, with a premium. And remember, don't just fall in love with your idea. Be more in love with how you're going to execute the plan that will make it real.
Kristopher Jones is a serial entrepreneur and IT CEO of local internet marketing and e-commerce start-up ReferLocal.com, a bestselling author of multiple books, and the founder of the early-stage technology investment fund KBJ Capital.
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