How to Make Your Startup Irresistible to Investors
Clear differences exist between startups that can raise financing and those that can't.
Any startup that's serious about growing and scaling has to think bigger. There's nothing wrong with starting small and lean — most companies have to take this approach — but there comes a time when taking on outside investments and partnerships is necessary. And to maximize these opportunities, you need to proactively focus on making your startup as irresistible as you possibly can.
Related: Getting Started With Angel Investing
What do investors want in a startup?
Investors look at businesses differently than business owners, employees, customers and even media publications. They take all emotions out of the picture and analyze startups based on one specific element: How likely is it that this business will generate a positive return on investment for me?
At the end of the day, the answer to this question is all they care about. Now, how they arrive at this answer is a little more complicated and thorough. They consider things like:
Hard data and numbers. Investors aren't interested in gut feelings and subjective metrics or emotional projections. They want to crunch the hard numbers.
Rock-solid plan. Investors want to see a detailed business plan that carefully outlines a trajectory for the next six months, year and even five years down the line. This includes articulate insights into the market, sales channel, marketing goals, competitive analysis and cost analysis.
Unique idea. What sets your business idea apart from the dozens of other existing companies directly competing with you for your target customers? There has to be a compelling unique sales proposition (USP) or an investor will have a hard time believing in you.
Clarity. It's not enough to ask for money from an investor. The savvy investor wants to know how much you need, where that money will go, why it should go there, how much value it'll return and when they'll get their money back.
How to make your startup irresistible
Now that you know precisely what investors are looking for when investing in a business, the question becomes: How do you make your startup irresistible to them?
In other words, how can you make your startup sound so compelling that investors are lining up to get involved?
Here are several helpful suggestions:
1. Get clear on your USP
Investors aren't interested in generic businesses that make a little cash flow. They want businesses that have a very clear and compelling USP. (They know how important it is for branding, messaging and sales.) So before you even think about pitching your business to investors, get this squared away.
There are plenty of effective ways to create a USP, but here's a good formula that works well:
We help [target audience/niche] achieve [specific, quantifiable benefit] using [unique mechanism] so that they don't have to [pain you help them avoid].
The more time you spend dialing in your USP to fit a format similar to this, the more intrigued investors will be.
2. Have your financials audited
Investors expect you to know your numbers (Otherwise, why would they invest their hard-earned money into your company?) But, perhaps even more importantly, they want to know that your numbers are verifiable and true.
The best way to validate your numbers is by having your financials audited for the prior three years by an outside CPA or firm. This isn't required, but it certainly makes you appear more professional. And as long as the numbers are strong, it'll give you more leverage.
3. Eliminate excess costs
As business owners, we often get so focused on increasing revenue that we forget there are two levers to profitability: income and expenses. Sometimes the easiest way to improve your profit margin is by eliminating excess costs.
Yes, you want healthy revenue numbers — and they should grow year-over-year — but don't forget to trim your expense sheet from time to time. This shows investors that you're conscientious with your funds.
4. Have clear, documented goals
Regardless of whether you're targeting investors or not, you need to have very clear, documented goals for your business. Vague goals like "increasing revenue" or "launching a new product line" aren't effective. They have to be specific, measurable and in line with your USP. Bonus points if you can align your short-term goals with your investors to show them how their money will be used to help you accomplish these objectives.
Adding it all up
There comes a point in time when most business owners have to decide what they want for their company. There's nothing wrong with staying small and carving out a nice little footprint in your local market or niche. But if you're serious about achieving significant growth, it's usually best to bring on some outside help in the form of an investor or equity partner.
By looking at your business through the lens of an investor, you conjure up more attention and interest.
Entrepreneur Editors' Picks
Tory Burch Built a Brand Around Empowering Women. Now Her Foundation Is Furthering Her Mission: 'How Do We as a Company Have a Positive Impact on Humanity?'
This Founder Had to Play College Basketball in Men's Shorts and Shoes, So She Launched an Athletic Clothing Company Named After the Now 50-Year-Old Title IX Act
Is Beyoncé's 'Break My Soul' the Theme Song of the Great Resignation?
You're Probably Falling for All of Amazon Prime Day's Psychological Sales Tactics. A Marketing Professor Reveals Them — and How You Can Actually Get the Best Deal.
Comedian Paul Virzi: 'If You're Not Authentic, You Have Nothing'
Struggling to Come Up With Creative Ideas? Try Doing This.
Picking a Winning Emerging Brand Is How You Get Rich in Franchising. Here's How to Spot One.