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Finance / Pitching Investors

How to Approach an Investor for Your Startup

Personal financial track record usually works as a proof for investors
How to Approach an Investor for Your Startup
Image credit: Shutterstock
CEO, Quick Forex
4 min read
Opinions expressed by Entrepreneur contributors are their own.

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Entrepreneurs face a numbers of challenges when starting a business. Therefore before hosting the flag to any start-up, you must be aware of the fact that the business world cannot survive without the intake of, “Risk.” It has been said the amount of profit or loss always depend on the level of risk being chased. In other words, higher the risk, larger is the profit or loss.

We all are well aware of the fact that the industries survive on the intake of “Risk.” But we should also not forget that to take the risk and make survival possible, money is what works as a lifeblood for business.

Capital is the most crucial point of concern for every start-up firm. Because no business can flow smoothly without funding, therefore the start-up organization should focus on raising funds. The outside infusion always helps a start-up to grow. Hence for raising money and approaching any investor, you need to do some homework on few important things that are listed below.

Clean Up your Credit

If your business does not have any strong background with credibility, then it is possible that investor might demand proof. They might want to see how responsibly you can manage the money and pay your debts. The personal financial track record usually works as a proof.

The lender or investor will always take a close look of your credit history. The credit report can be collected from three major agencies Equifax, Trans Union and Experian.

If you find any mistake, contact the creditor involved and send an edited copy of the letter to all the three agencies by yourself, because investor might be less concerned with your credit score for a time. But you cannot afford risk here as different entrepreneurs have different aspect of judging.

Buckle up Your Team

Investors always want a gut feeling that they should trust you and your team or not. Therefore, “Can you do this? Is the question that nearly every financial backer will always ask. The simple reason behind this question is that they want to check your management team they want to see how ambitious your team is.

The row of question does not stop there. How much the team involved in the plan is experienced? As experience is the key factor to judge the credibility. Make sure your team is ready with the answers on their finger tip. Each and everything needs to be well organized and planned before presentation.

A Planned Business Structure

Planning is the very important step during business. Some might find writing a start-up plan is easy, but writing the same letter to the investor can be a bit tricky.

Measure how much money a not-yet-profitable business is spending each month, and break it in even point. For starter, knowing you’re your burn rate is mandatory. Prepare a well-balanced estimate of your first year capital requirements, gross margin, and how it compares to average for your industry.

A fruit full plan will always focus on who your customers are and what should be its selling point accordingly. Not so over confidence but a sense of confidence is always needed in your personality. This will help in drawing that you know way more about this business than others in the industry.

Background Research on Your Backer

Knowing the background of your backer before-hand is always an add-on to the entire process. This will help you to understand the state of mind of the investor this will also refresh your list as you can match which backers suit right with your financial needs

A little homework on your backer will help you to learn how they do business and what their criteria are. This will also make things go smoother.

Do you have fund available? This is the question mostly left unspoken during the presentation of meeting with the backer, as some lenders may not be able to lend the amount on the very moment. Hence a proper background check is always helpful.

Create an Investors’ Wish List

Before approaching any investor, one should prepare a list of ideal investors and always choose them carefully. Accepting funds keeps you engaged in a long term relationship professionally.

Before any money changes hands the relationship goes on for sometimes. The investor should be bank, friends, family or anyone out of the blue. The list usually consist only six conversation out of which according to your understanding and compatibility one should approach the investors.

Eventually the six will narrow to one or two relationships where the timing, the style and strategy and the gut feeling seems right on both sides. Those will be your lenders or investors.

How Can One Catch the Eye of Investors?