Connect with us

Magazine

The 10 Commandments for Obtaining Funding for a Startup

Published

on

Informative

Have you ever watched the episodes of Dragon’s Den or Shark Tank? You might have concluded that it’s so easy to pitch to investors. However, this is not an easy process judging from the number of rejections in each episode.  Although the show is generally overdramatized, it can teach you some vital lessons.

On the other hand, pitching in the real business world is way different from what you see on the TV. Getting angel investors to invest in your business requires efforts. You need to stand out, understand their motivation, succinctly articulate your vision, and explain why you think your business has the potential to become a significant company.

Just like religion, the business environment has its 10 Commandments or set of rules. These rules play an essential role, such as setting the tone of organizations and determining whether they will fail or succeed.

The article provides you with the 10 commandments that will help you pitch to your angel investors.

1.   Understand your Audience

You need to understand your target individuals and groups before you approach them. This means that you shouldn’t spend your time pitching to every investor that comes your way. Thorough research will help you to know those who invest in your space and tailor your presentation to what motivates those who are there. 

2.   Never Send Investors Unsolicited Business Plan or Executive Summary

Investors are busy, and for that reason, they don’t have time to go through thousands of emails that they receive to find a diamond. For that reason, they routinely discard unsolicited emails. in view of that, they appreciate or pay attention to referrals from their fellow venture capitalist, colleagues, or network.

3.   Contact the Angel Investors through their Network

You may choose to approach the investors directly. However, it’s best if you were introduced to them by their network, friends, or colleagues. You need to search through your social media contacts such as LinkedIn, Facebook, and Instagram to see if you have any mutual connections. Try reaching them through accountants, lawyers, investment bankers, entrepreneurs, or fellow venture capitalists. Cite such individuals when communicating with potential investors.

4.   Articulate the Problem your Startup is solving

Once you understand the target investors, clearly explain why you believe that your proposed product or service is going to satisfy an important unmet need or solve a big problem in the marketplace. Tell them what the problem is, why the present solutions are inadequate, and why your solution is different from the competitors. Write a compelling story that is highlighted by numbers.

5.   Demonstrate that the Market has a Huge Opportunity

No investor will want to put their money in a market where threats outweigh opportunities. Instead, they want to invest in businesses with substantial market opportunities or one that can be grown or developed. It would be best if you told them how big the market opportunity is that you’re trying to address. Back up your claim about the addressable market and its growth rate with data. Indicate the percentage of the market that you intend to capture and show them over what duration. As a matter of fact, investors hate discussing with founders that don’t understand the basic metrics of their business. 

6.   Prove that you’re Suited for the Success of this Business

Most investors’ decision is inspired by the founders and the management structure of the company. They are more interested in the team behind the business than the product or the idea. For that reason, you need to prove that the founders are dedicated, passionate, and have integrity. You need to demonstrate that they have relevant domain experience, can work as a team, and are strongly motivated.

7.   Show a Prototype

Provide your potential investors with a prototype, demonstration, or an image, for it gives them a powerful understanding of your venture. You need to provide angel investors with features that differentiate you from your competitors. Present a great product feel and look or user interface. Tell them about the technology and the key intellectual property (IP) behind your product. Indeed, talk about the consumers of your products and discuss what you have learnt from their feedback.

8.   Design a Great Pitch Deck

Most startups fail to attract investors because their presentations are confusing, ugly, and overly long. It would help if you prepared a great pitch deck or PowerPoint presentation to your potential investors. It needs to have a compelling vision and story. For instance, the deck should have 15-20 slides. More so, it should provide the general overview of your startup, the product or service, the problem you’re solving, the market opportunity whether growing or large, your business management team, the business or revenue model, the marketing strategy, the competition, financials, and projections. Remember that the financials are like bikinis; they reveal what is suggestive and conceal what is vital. For that reason, don’t disclose too much information, but tell them what you think is enough for them to know.

9.   Avoid Mistakes when Pitching

Avoid the following 5 mistakes when pitching to the angel investors.

  • Don’t tell your potential investors that you don’t have competition.
  • Avoid the tendency to underestimate your competitors and customer acquisition issues.
  • Please don’t give them a 50-page plan because they don’t have all that time to read it.
  • Avoid telling investors to sign a non-disclosure agreement.
  • Avoid presenting uninteresting or unrealistic financial projections or valuations of your company.

10.   Reveal any Adoption or Early Traction

Showing the investors that you have paying customers places you ahead of other entrepreneurs that have only a business plan or idea. In view of that, share your good reviews and press as well as customer testimonials with your potential investors.

Conclusion

There are several reasons why angel investors choose to invest in a given sector or company. However, adhering to the above 10 commandments is not a guarantee that you’ll receive investment. Indeed, you won’t be written off if you follow them because you will have all that you need to pitch to your potential angel investors. 

Also check the top 10 legal mistakes that startups make. 

I'm a passionate and full-time blogger. I love writing about startups, how they can access key resources, avoid legal mistakes, respond to questions from angel investors as well as the reality check for startups. Continue reading my articles for more insight.