Effective strategies to attract investors for start-up

You are running your business quite effectively & profitably. There is nothing wrong in self-financed, 100% equity, business. But sometimes you need an investor who can finance your idea, project or the start-up which gives you an opportunity to leverage the growth of your start-up. It is true that finding investor is a long process and a difficult task but with effective strategies to attract invetsors for your start-up. You may not see investing as a daily routine, but yes it happens in one way or other with each one of us.

We hear & read so many stories about companies shortlisted by the investors for funding after getting convinced with their growth ideology. I have seen and analysed that every investor has a different perspective for funding a company but yes, there are certain ways and methods when you adopt helps attracting a right investor for your start-up.

(1) You must have an effective business plan

Investors generally look for the profitable businesses which may or may have a business plan. An effective business plan is certainly a good technique to pitch your investor. A 2-3 page effective business plan can generate interest in investors which make them to inquire further. So, I can say that a good business plan is a sort of window for the investors to get to see into your business. The more clear and crisp it will be, the better is the view for the investors. An effective business plan generally covers the following aspects:

• Business overview
• Financial projections
• Cash flow forecasting
• Marketing plan
• Strategy

You business plan should include the weak points of your business and the measures to overcome them. Your business plan must justify the financial projections which you are showcasing to the investor.

(2) Your business should be profitable and scalable

A good business has two important aspects embed in it one is the profitability and other is scalability. The profitability shows the profit margin in your business while the scalability signifies the extent of growth in the business. The absence of any of the aspect makes your business less lucrative for the investment. It can be summarized in the following manner:

Case

Profitability

Scalability

Outlook

1

Less

Limited

Negative

2

More

Limited

Neutral to Positive

3

Less

Unlimited

Neutral to Positive

4

More

Unlimited

Positive

Try to fit your business in the fourth category where your profitability is more and the scalability is unlimited. You can make use of the latest technological tools to make your business more profitable and adopt effective strategy to scale it by way of diversification, vertical integration, partnerships' etc. The innovation of the new product in the market not only gives you the higher profit margin but also helps your business to reach greater heights and makes you a market leader. Therefore, howsoever small is your business, always keep and spend a specific amount on research and development.

(3) Your product or the service should solve the problem of the society

The product you have designed or the service you are providing must serve the purpose in the society. It has the ability to create need among the customers or fulfil the need gap. You should ask a question that why customers should buy your products or the services.

And if you are able to answer this in a free-flow without a second thought then I can guarantee you are successful in creating a need or fulfilling a need gap.

• I personally inquired many customers about their need for the residential solar power installation on their roof-top. Yes, most of them were interested in going ahead with it but their main apprehensions were about the system cost and its overall feasibility like payback, ROI. They actually wanted something which informs them about all this before actually going for the lakhs of investment in the solar. I understood their need and designed Residential Solar roof feasibility spreadsheet which let them to know the complete feasibility within $4 or Rs. 399/- .What I did?

I filled the need gap of knowing the feasibility of the system, paying a small amount, before anyone going for the solar roof installation.

(4) Your business should provide the return on the investment

A mere profitability does not serve the purpose, you must show the investor, the return on his investment, if he/she is going to invest in your company. A longer gestation period may repel the investor while a short period can create an interest in his mind. The period of return varies from the industry to industry and the longer or the shorter ROI is referred with respect to the industry average.

• The investor is most likely to invest in your start-up or the idea if the projectedROI > Industry average and
• Payback period < the Industry average 

While the opposite financial equations, may repel him investing in your business idea.

The above chart projections with short payback period and higher profitability are more likely to get funded by the investors.

(5) Share him the comments of your loyal and happy customers

If most of your customers are happy with your products & services then you have a cutting edge over others, looking for the funding. Sharing comments with the investors gives an insight about the acceptability of your products & services. The customer is the king in almost all of the cases and when you have customers, you have higher probability of being funded by the smart investor. Actually, selling a good product to the customer should not be the only motive of the business instead it focuses on repeat sales and earning customer loyalty. The loyal customer is more likely to attach with you and can bring new customers in the longer run or even can refer any investor for you. Please read this free e-book on Repeat sales & customer loyalty.

(6) First, Pre-launch your product

I feel that instead of directly asking for the funding it is always better to pre-launch your product and see its response among the loyal customers. You can also discuss and share it with the investor, taking his feedback about the product. The soft-launching will not only give you the rough idea about the scalability of the product in the market but also let you know the required changes to be done to make it more viable and effective.

There are following benefits of pre-launching:

• You are one step ahead as you have implemented your idea
• Your product is in the physical form
• You can assess the marketability and the acceptability of your product
• Your projections will be more accurate as you know its marketability
• You can discuss with the investor about any modifications to be done to make it more acceptable
• You & your investor are now confident to go ahead

(7) Update him about your start-up progress regularly

Investing is a long term process and the investment is generally spread into different phases. Convincing an investor requires time and you must keep the investor in your communication loop. The best way to keep the communication going is keep updating him about the progress of your start-up. You can keep a personal meeting fortnightly or once in a month and provide the financial updates of your start-up and on daily basis you can definitely update him the progress through e-mails.

You must have something which enables to streamline the updates of your start-up and Profitbooks can certainly help you out in this activity. It is cloud based software which does not require any major accounting skills enables you to run your business with clarity. You can share you business insights like letting him know about your highest margin products, you up-to-date inventory turnover rates and many more helping you to run your business effectively.

This activity will not only provide him the knowledge about working but also give him the starting confidence to invest in your company. This sharing technique will create a bond between you and him and develop trust in the business. A known person is more likely to get the funding than the new one.

(8) Increase your online presence and get noticed

The most effective way increasing your business presence is going online, whose importance I have discussed in "How to give your solar business a competitive edge?"

You should have a website of your business and keep a blog, updating about your business through interesting articles, technological developments and the happening in your industry. This is called content market and it is one of the effective ways of getting more customers and gets noticed by the investors in your industry. Please read these three success stories where people actually leverage their content to grow their business.

An updated website is more likely to attract investors than the static one. You know with small investment in making your website you can actually make your business more effective and technologically updated. This online strategy has the capability which lets your business get noticed by the investors worldwide.

(9) Create a good team with a vision

a€?Investors seldom invest in one Man Company. They look for the team of people who are committed, honest, tenacious, working in resonance and have a well defined vision for their start-up. The clarity in the vision of the company indicates well defined actions which leads to the growth. In addition to that, investors like when you are flexible in incorporating the changes in the product they feel should be done to make it better. A knowledgeable & experienced team who is continuously improving it through regular training is likely choice of the investors.

Conclusion

You can say that investing is a continuous process where you keep pitching the investor to attract a good investment amount for your start-up and the same time you keep adopting good practices to make your business more lucrative. With time your start-up actually starts improving and showing results and you end up getting funded.

Thanks & RegardsSparsh Sharma

Mob.-8130872040/8750256335

Skype- sparshmech