5 Tips to get your Startup ‘Investor Ready’

Nearly one-third of all startup failures result from running out of cash, according to a survey by CB Insights. Let’s assume you have a good product (so you’re already ahead of 42% of those who failed because they built a product that wasn’t needed). What can you do to avoid running out of cash and succeed in securing some solid backing from investors? Let me run through 5 tips consistently used by successful startups.

Resilience is your greatest resource

As the majority of investors reject most opportunities pitched them, perseverance and resilience are essential to you seeing through the long-term success of your company. As a founder, you should ultimately be positive and optimistic about your offering. However, it pays to be realistic about the challenges that lay ahead in realising your vision. Only about 10% of founders succeed in making their first startup a success. As an entrepreneur, you’re in this for the long haul. Don’t let failure deter you — interestingly, research shows that a larger proportion of founders have success in their second venture. Most likely, this is because of lessons learnt and resilience built along the way. If this is your first startup, the odds are stacked against you. Give up too soon and you’ll be left wondering what would have been. On the other hand, being resilient will give you the best chance of succeeding through this and later challenges.

Research who will be interested in your idea

It is a common misconception that pitching your idea to the broadest possible audience will typically generate the highest degree of success — often termed “the numbers game”. This approach generally results in founders pitching to people outside their industry who aren’t strategically interested in what they have to offer. This leads to unnecessary rejection. With the right teasers, investors will look for insights into your business through your website, social media platforms and other publicly available information. You should take this time to be active in conducting due diligence on the types of investors you want to bring on board. This forces you to consider investors in terms of what they will contribute to your company other than funds alone. An investor whose only contribution is money is a liability. Seek to foster a strategically beneficial relationship.

Attract the right people to your team

Investors look for three main things in a business: the team, the product, and the market opportunity. Therefore, to build a solid foundation for future success, you should prioritise from the outset building a team with passion, compatible personalities and the right technical expertise to help your business grow. It’s worth noting that outsourced “founders” may not share your same strategic vision which can ultimately put your company at risk — ensure each founder is incentivised to support the company’s long-term strategy. On the point of executing on your business strategy, it is invaluable to have a knowledgeable mentor in your team with a wealth of experience in scaling businesses. These mentors can also help build your network and connect you to other individuals who can bring value to your business. Additionally, since investors will inevitably turn their attention to the company’s financials, it is important to have financial and accounting experts on board who can explain your business financial model to other stakeholders.

Have your business plan and financials in order

A business plan goes a long way in painting the picture of your vision to potential investors along with demonstrating the lifetime value that your business holds, irrespective of its current profitability. The plan should indicate to investors that the leadership team behind the business has thought through their personal strengths and weaknesses and has a plan in place to acquire the talent necessary for the business to succeed.
Investors will be reluctant to provide you with funds based on your ideas and vision alone, as they want some objectivity about potential returns on their investment. This highlights the importance of preparing financial data to inform investors in their decision-making process. Having secure and reliable software in place that can pull high-integrity financial data about your business will instill confidence in a potential investor. Work with your accountant and banker to ensure that they have access to all the necessary data. A nice touch is to create a direct-bank feed to guarantee that investors are viewing the most up-to-date financial information.
The most convenient means by which investors may access documents of a strategic or financial nature is through a data room. Whilst using a simple Google Drive or Dropbox is a good start, ideally your data room should allow end to end encryption at the document level (like the one provided through PEF Capital) and be separated into various ‘vaults’ for each stage of the transaction process.

Begin thinking about how you will execute your plan

Even for investors easily caught up in your business’s team or idea, ensuring there are sound processes in place will be crucial to getting them to sign on the dotted line. This generally means talking investors through step by step the key processes on which you will rely to implement your solution. Usually, this will be at a high-level but be prepared to talk details if required.
An example of this is risk management, as severe consequences can arise for all stakeholders if adequate measures are not in place. It would be insufficient to address risk from a high-level, and detailed risk management procedures should be put in place from the perspective of the specific type of risk, such as key-person risk or operational risks.
A startup’s sound processes should be well-documented with key ones accessible in the company’s data room, targeting areas such as business work streams, strategy, operation, action planning and evaluation.

Key Takeaways

We see all too often founders who begin attracting investors too early. Sometimes they believe investors will be sold on a good idea without the steps mentioned above. Other times it’s because they aren’t aware that they are not ready and could benefit from external guidance. If you are considering seeking out potential investors and have any questions, get in touch with us at [email protected]