What to Consider Before Taking on an Investor

What to Consider Before Taking on an Investor

From Kashif SEO

If you're a business owner considering taking on an investor, there are a few things you need to think about first.

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If you're a business owner considering taking on an investor, there are a few things you need to think about first. An investor can provide the capital you need to grow your business, but they will also want a say in how your company is run. So before you take on an investor, make sure you're comfortable with giving up some control over your business. You also need to be sure that the investor is someone you can trust and that their goals for your company align with your own. If all of those things check out, then an investor can be a great way to get your business to the next level. This can be a tough step and it’s hard to know exactly when to take it and who to ask. We spoke to some top level business owners and entrepreneurs who had some thoughts on what specifically to consider before starting to seek out investors. 

Crunch the Numbers and Make Sure You Will Bring a ROI 

The best thing you can do to prepare for future investors is to make sure your company will bring a return on investment for those backing you. “Before you start looking for investors, you need to make sure your company is making a profit and will bring your backers a return on their investment. This is why it’s important to wait for this step until your business is showing financial promise. Most businesses won’t make a profit within the first year, and it can take a while before a business feels stable enough to be attractive for investors.” - Ryan Rottman, Co-Founder and CEO of OSDB

At the end of the day, investors are looking to make money! Your initial investors will understand that your business is new and there are risks involved, but it matters to show in clear data how you plan to grow your company. “Investors are looking to make money! Of course, they want to put their dollars behind ideas they believe in, but at the end of the day they need to be sure that whatever they put into your business, they’ll see it come back to them at some point. If you’re considering taking on investors, make sure you crunch the numbers so you can have clear data to present to your potential investors.” - Karim Hachem, VP of eCommerce at Maxine of Hollywood

Make a Solid Business Plan and Know Your Competitors

The clarity and depth of your business plan will make all the difference once you’re trying to pull in investors. The more put together your company is the better position you are in to start seeking external financial backing. “Make sure you have a solid business plan that includes the market you’re targeting, data based financial projections, a timeline for your profitability and marketing plans for the coming year. The more bases you have covered and supported by hard data, the better chance you have at attracting valuable investors to help you fortify your business moving forward.” - David Culpepper, MD, Clinical Director of LifeMD

You’ll also want to internally address how you plan to deal with your competition and stick out from the crowd. “Have an idea of the competition you stand to face, and how you might combat that moving forward. Standing out of the crowd is a tough thing to do these days, and the more solid your plan is for standing yourself outside of the market noise the more exciting your business will be to invest in. No one is looking for the status quo, so make sure you come up with creative solutions to make your business plan unique and interesting to potential investors.” - Tyler Read, Founder and Senior Editor of Personal Trainer Pioneer

Your Story Matters 

Hard data is essential for attracting investors, but your story and passion is what will drive it home. “Investors are going to go for companies and ideas that are both unique and paint a strong narrative for your brand and company. Investors want to put their money behind successful businesses, and the more unique and strong their story is the longer the brand will likely last. Take some time to think about the story of your brand, and why it means so much to you and your team that this business gets off the ground. This is where you can lean away from the hard data and talk about your company in a more human way, which is as much a part of the conversation as the hard data is.” - Jim Marggraff, CEO of Kinoo

Your initial backers may be people from your immediate network, and even when that’s the case it’s important to show your passion for what you do. “Make a clear statement describing why the business is important to you and make sure this is clear when addressing investors. Your own personal investment in your business is more likely to make investors feel like your company is worth their money!” - Dan Lewis of Convoy

Have an Investment Plan Detailing How You Will Spend the Money

Whoever invests in your company will want to know how you plan to distribute their funds throughout your business. “Make a clear outline and plan detailing how you will use the money that is injected into your company. It’s not as simple as an investor handing you a check and saying good luck, they’ll want to know how exactly you plan to distribute the money in your business, and what it will do to help your company become successful in the near future. Make sure you and your team have an ironclad strategy for implementing the funds you’ll be receiving from your investors.” Chris Vaughn, CEO of Emjay

In these situations, the more detailed you can be the better chance you have to build their confidence in their investment. “The more detailed you can be with your investment plan, the better. Outline clear tables and timelines for how their funds will be distributed through the business.” - Chris Britt of Chime

Practice Your Elevator Pitch 

The more you practice your sales pitching, the better prepared you’ll be when facing investors. “You’ve probably heard this term already, but you need an elevator pitch! An elevator pitch is essentially a short sales pitch of your company that can be delivered in a few minutes or less. This is great not only to be able to draw in new partners and network, but also to practice your ability at selling your business to other people. This does take practice, as selling yourself can be a nerve wracking experience. But the more you do it and the more you refine your pitch, the easier it will be when it really matters.” Cody Candee, Founder and CEO of Bounce

Imagine the Worst Case Scenario 

When it’s time for that important meeting, practice with your team and have them act out the worst case scenario. “Something that you can do to prepare yourself for an investor meeting is to imagine the worst case scenario and practice your responses from there! Try setting up a mock meeting with your closest team members and practice your pitch with your team members reacting according to the worst case scenario. This will help you feel more prepared for the worst, and will take the nervousness out of the meeting when it goes better than you expected it to.” - Alex Carroll, Founder of Caliber Games

Know Your Goals and Have a Clear Timeline 

Before finalizing those meetings, make sure you know what your goals specifically are for growth. “Consider what your investment goals are! This is important not just because your potential investors will want to know, but also because you need to have an organized strategy you can roll out quickly if you do get injections of money. There’s nothing worse for a business than sitting on injected cash and not knowing what to do with it. In those cases, the money often gets misused or put towards things that don’t pan out or aren’t thought out enough. Make sure you organize your investment plan before seeking additional or initial investors.” - John Cheng    Co-Founder and CEO of Baotris

Make sure your timeline for growth is clear. The more detailed you can be, the better for your investors. “Have a clear idea of the timeframe it will take you to reach profitability, both with and without investors. These hard data numbers are important for you, your team and your investors because it gives you options on how to move forward regardless of whether you currently have investors, or if you’ve gained the ones you need. You want this part of the process to be a step upward, not a stopping point for your business. So make sure you have an operations plan in place for any possible result of your investor meetings.” - Phillip Akhzar, CEO of Arka

So, if you’re thinking of taking on investors and want to make sure that everything is in place for a smooth process, be sure to keep the following in mind. First, have a solid understanding of your business’s profitability and when you can expect to break even. Next, put together a plan for how the money will be used and what kind of ROI backers can expect. Additionally, the more unique your idea is and the more passionate you and your team have for the business, the more inspiration that will inspire in your potential investors. Finally, make sure that your business is looking good from a financial standpoint; this means having up-to-date records and being able to demonstrate growth potential. Having all of these things in order will help ensure that both you and your investors are happy with the arrangement. It will also help businesses to have a clear understanding of their story to make a personal connection with their investors as well. A lot of the time, initial investors are friends and family in your immediate network and they will already have a personal connection to you. From there, you’ll need to define your story and the goals you want to meet by running your business. 

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