There are numerous ways to find investors for your start-up business. However, the sad reality is that only a handful out of so many entrepreneurs will get funded. Some are blaming the economic downturn for the difficulty in securing financing. However, for startups, it's also difficult even in a vibrant economy. While many are willing to invest excess funds, what will actually make them to put their money into your business?
The key is to make your prospective investors have confidence and trust that their money will not go to waste. Make your business fundamentals solid and your plans feasible. Here are some tips on how to do it.
Make sure to do your homework. Do a thorough market research for your business to determine its viability. Determine the market environment - the existing competition, location, demand projection, and other factors that may affect your start-up business. You should be able to convince the investors that you have studied the market environment well and that you have considered every possible factor that can make or break your business. Convince them that most likely your business will succeed, and the only impediment is funding.
Create a business plan. Make sure that you have a business plan that will be the core program of your start-up business. Impress your investor with a five year business plan which includes all programs, targets, and activities for the business. Back up your targets with realizable programs. Enumerate the assumptions you used and the reasons why you used those assumptions. Anticipate questions from your prospective investors and make sure that you can answer them all. Be cautious to overdo it as it may sound too good to be true. The purpose here is to show that the business is realizable given real scenarios.
Indicate where the money shall be invested. Investors would like to know how their money shall be spent. Is it for CAPEX or OPEX? CAPEX is for capital expenditure, for equipments or additional equipments that is essential for your business. Meanwhile, OPEX is for operational expense. It is an on-going cost for running a product, business, or system. Make sure that investors are well informed on the list of things you will be spending, which should adhere to your business plan.
Define your exit strategy. Your investors will be interested to know what you plan to do with your business once it takes off. Do you offer shares of stock to the public in an IPO? Do you turn management and ownership over to the investors after several years? Or do you plan to partner with them eventually?
There are pros and cons of having an investor for your start-up business. The advantage is that you won't be using your own money for growing the business. The disadvantage is the investor's stake in your business. Naturally, the investor now partly owns your company, unless the investment is treated as a loan, and you just pay the bank the money plus interest. But most likely, the investor shall be involved in every major decision the business will be taking.
Funding is very crucial for starters, but an entrepreneur should know where to get it. Depending on the type of business you will be seeking, your funding and financing options can also vary. Keep in mind that taking an investor aboard is not simply borrowing money from someone. The investor is interested in your business success, so make sure to outline your plans well before asking funding from an investor.