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What Are Potential Investors Looking For in a Startup Business?

Gary Addison

Gary Addison

Director at Redundancy Claim
Gary Addison is a director at Redundancy Claim. Gary advises company directors on issues related to director redundancy, employee redundancy and statutory entitlements.
Gary Addison

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You have the idea, you have the business plan, you have the drive to succeed; what you don’t have is the money to turn this dream into reality. Fundraising from traditional channels like banks is tricky for many entrepreneurs in the current climate. For a startup with no trading history, a non-existent customer base, and sometimes little more than an idea and a bucket load of enthusiasm, it can verge on impossible. Many brilliant ideas fail to get off the ground because of a lack of funding.

One alternative area of funding often considered by startups is to look for investment from an unrelated investor.

In exchange for a percentage of the business, an investor will provide a cash injection to help push the business to the next level.

Although this may seem great in theory, it is often just as challenging, if not more so, to obtain funding this way.

For starters, actually getting yourself in front of a potential investor can be tricky. Consequently, it is often wise to begin this process by looking at your existing contacts. Not only can this accelerate the process, but an introduction from a mutual contact is often received much better than a cold-call.

If this is fruitless, consider joining local networking groups. Not only will you have the chance to meet like-minded individuals and hopefully potential investors, you will also get your name, face and brand out in the public domain.



Remember, however, that this is just a foot in the door. Once you get in front of an investor, the hard work really starts.

No investor worth their salt will invest money if your idea is not fleshed out or presented well, so keep the following in mind:

  • Sell yourself as well as your business: Getting yourself in front of a potential investor is half the battle. Once you get in this position, make it count. Remember, you are not just pitching your idea, you are also pitching yourself. An investor is investing in the product, but also in you as an individual. Regardless of how good your idea is, any investor will need to be confident in your ability to see it through and build it into a successful and profitable business as an entrepreneur. Don’t be afraid to show your enthusiasm and reveal your motivations behind the idea. Although this is ultimately a business transaction, a human touch goes a long way.
  • Be prepared for criticism: When presenting, be clear about your proposition, be honest about your weaknesses, and most of all, be open to receiving criticism. Not everyone will be prepared to invest their money in your idea, not everyone will even like your idea, but criticism can be a blessing in disguise. So long as it is constructive, criticism can be invaluable, allowing you to tackle the weaknesses in your proposal and ensure you move on to the next opportunity in a stronger position. Sometimes we can all be guilty of working in an echo chamber with those closest to us assuring us our product or idea is perfect. An outside and unbiased view can be tough to hear, but sometimes it is exactly what is needed to take your business to the next level.
  • Embrace your uniqueness: As well as looking for a business which can ultimately make them money, investors are also searching for something unique to be a part of. Showcasing your uniqueness by bringing something new to the market is a great way to make yourself memorable and increase your chances of securing funding. If your idea isn’t particularly innovative, don’t despair. Instead, focus on how you are approaching it in a way that makes your business stand out. If you can prove why customers in the marketplace will choose you over your competitors, you are on your way to convincing an investor to choose you over other entrepreneurs.
  • Be realistic: It can be difficult to value any company accurately, particularly a startup, however, you should be careful not to over-inflate your business’s market worth when pitching for investment. This is done sometimes through inexperience, other times it is driven by greed, and often it stems from a desire to make the business appear larger, better established, and therefore more attractive to investors. Despite this, it often just prices you out and conversely leads to the investor taking you less seriously than a smaller more realistic valuation would. After the blood, sweat and tears you have poured in your business to build it up to its current level, it is only natural that you may place a higher value on it than an outsider would. However, investors will not pay for sentimentality. You need to look at your business objectively and make sure you are asking for a reasonable amount based on verifiable research and solid financial figures. Don’t forget that an investor is worth much more than just the financial input they can provide. From giving business advice to allowing access to their network of contacts, an investor can be an invaluable additional to your growing company.

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After pitching your idea, hopefully you will be rewarded with that all-important investment your business needs.

If not, don’t feel too downhearted. Ask for feedback and work on any weaknesses that are presented to you. Remember, every investor is looking for something different, you just need to find the one who is right for your business.

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