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The Art of Attracting Investors to Your Start-Up

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Many entrepreneurs dream of starting their own business and often seek out investors. But what does it take to get these investors? What will attract investors to your company?

Entrepreneurs are trying to sell shares in their start-ups to investors. The heart of the matter is the word SELL. The funding process is a sales process.

From an investor’s point of view, there are always two products associated with a start-up. There’s the product or service that the start-up is offering to its customers and then there is the company itself. Investors make their money by selling the company and so to the investor the start-up itself is their product. Investors are first interested in making a return, even the socially conscious or double bottom line ones.

Who’s your customer?
Entrepreneurs should look for money where it’s inappropriate. You wouldn’t spend all your time pursuing customers who aren’t going to buy, you’d qualify the prospect, so don’t look to investors who aren’t going to invest.

Seed funds are popular these days and often provide less than $100,000. Likewise, with the advent of social networking, crowd funding and micro financing have become popular too. Angels often provide between $100,000 to $1 million, and their biggest concern is having their equity diluted to next to nothing in follow on rounds. An angel looks for a total investment before the company is self-sustaining to be less than $5 million. Venture capitalists are who you go to when your project requires millions and millions of dollars.

Who’s your competitor?
For a start-up seeking funding, every other start-up is a competing product. It’s not just those in your market sector, it’s all markets and industries. You may be a clean–tech start-up, but you may lose out on funding to a digital media start-up.

What do investors want?
First, a start-up is not about the product, investors only attribute 10% of a company’s success to the product, the rest is the everything else. Start-ups very rarely fail because the product couldn’t be developed. The first stumble is the marketing, gaining market acceptance and winning those first customers. The second hurdle is distribution. Today, investors want to see revenue. They prefer to invest when the company is poised to scale. It’s less risky. Investors want to see a great team, one who knows how to develop a product, one who can demonstrate a deep understanding of the market and its customers, one who knows how to create demand for the product, and who can capture the revenue. Investors are fond of saying, you can fire the team but you can’t fire the market.

Your start-up needs to build its resume, just like someone would to seek employment. It’s an employers’ market these days and it’s an investors’ market as well.

This is a guest post from Cynthia Kocialski. She is the founder of three tech start-ups companies and has been involved in more than 25 start-ups and has served on various advisory boards. Currently, she is a business consultant and mentor for start-ups and writes the Start-up Entrepreneurs’ Blog (www.cynthiakocialski.com) and has written the book, “Startup From The Ground Up – Practical Insights for Entrepreneurs, How to Go from an Idea to New Business”.

Image: Boaz Yiftach / FreeDigitalPhotos.net

About Gresham Harkless Jr.

Gresham Harkless is a Media Consultant for Blue 16 Media and the Blogger-in-Chief for CEO Blog Nation. CEO Blog Nation is a community of blogs for entrepreneurs and business owners. Started in much the same way as most small businesses, CEO Blog Nation captures the essence of entrepreneurship by allowing entrepreneurs and business owners to have a voice. CEO Blog Nation provides news, information, events and even startup business tips for entrepreneurs, startups and business owners to succeed.
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