How to influence and win over investors

Posted by By at 27 August, at 12 : 45 PM Print



TGR12_EntrepSmall business start-up capital is a highly sought after commodity as more and more entrepreneurs are trying their luck at business, writes Alex Pirouz.

Statistically, the odds of small business start-up success is less than 20% within a five-year period.

One of the main reasons why start-ups end up failing in large numbers is the inability to raise capital which is usually fuelled by the mistakes they make within the capital raising process. It is very rare for an entrepreneur to go through the capital raising process without encountering obstacles and hurdles. Some of them learn on the go, others learn the hard way.

Raising capital can be a challenging process, especially in an economic environment marked by so much uncertainty and risk. But entrepreneurs often make the process harder on themselves through their lack of knowledge and understanding about the capital raising process.

Rather than learning from the experience of others who have been there and done that, reading books, attending courses, hiring an adviser or simply gaining the advice of a business mentor, they tend to dive right into the process usually underestimating the skillset and expertise required to raise capital and walk away with an investment.

Ken Macleod, a corporate and business adviser at Scotia Macleod, has been helping business owners raise capital for numerous years now.

He believes that:

“The media are a large factor in fuelling the belief that anyone can raise capital for their business. ‘Boy from Burke raises $5 million for start up’, ‘Mum from Coffs gets $5 million backer for her idea’ to such a discredit to those who actually made this happen. This is not like winning the lottery, there is a lot of hard work that goes into not only incubating the idea (which is usually the easy part), to developing the business model, to finally targeting and securing the right sort of capital provider for the business in question.

“This is not to say that it is impossible for anyone. Quite the contrary, but it is largely impossible if the entrepreneur steadfastly believes capital will just walk through the door based on a phone call to the right person.“

The overarching rule that will keep the entrepreneur true to what an investor wants, is to understand that we live in a world where the number of opportunities seeking capital vastly outweighs the amount of capital available. But how can we say this in light of some corners of the media saying there are billions of dollars available to invest in businesses? Well the real problem is quality – quality opportunities to invest in. Unless the opportunity in question is marketed effectively as a ‘quality opportunity’ implicitly, and explicitly, then it will not get the time of day from investors. Securing private capital is a sales and marketing challenge more than a financial one.

One mistake that entrepreneurs make that is symptomatic of them forgetting that this is a sales and marketing challenge is that their pitching, documents, plans or whatever are overly focused or centred on their product, which is easy to do if you are an inventor, or it has been your life’s work for the past 10 years. The business, however, is where the money will be generated, not the product. Therefore, the focus must be on the business model (including the people), to make the money that you will be sharing with the investor. Speak for four times as long about the business model than you do about the product when you are pitching. If you only have 20 minutes to pitch then how does that change the game for you?

On the other hand, experienced entrepreneurs know that by default an investor will not invest. They acknowledge and appreciate the fact that every week investors are pitched by hundreds of other budding entrepreneurs with their business ideas, and the lack of quality will shine through. Only the best will get the attention. And this is key. A cheque book (do they still exist?) will not be pulled out on the first meeting, contrary to some expectations. So why pitch as if it will? Pitch to get interest and take it to the next stage, and allow the much-needed trust to develop on both sides before the subject of price and value get in the way.

But the first couple of minutes of the pitch are crucial to secure their attention – even just to listen further. And without this first impression box ticked, then you have lost them… back into their own worlds of the next deal, or their iPhones or the next conversation they need to be having.

 

Excerpted from an article originally published in the Sep/Oct 2013 issue of Think & Grow Rich Inc. magazine. If you are a subscriber to Think & Grow Rich Inc. magazine, you will receive this article in your Sep/Oct 2013 issue of TGR. If you are not a subscriber, click here to subscribe.

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