By Tim Parker
The hit ABC series Shark Tank has introduced the nation to the world of angel investing and venture capital. Each week, small business owners who are often self-employed pitch their ideas to five investors hoping to get an investment in their company that allows them to grow from a small business into a much larger company.
The same scene plays out regularly across the country. Self-employed business owners contact local investors and set up meetings with hopes of securing funding for the next stage of their development. Just as viewers see on TV, regardless of the quality of the business, if they make certain mistakes during the pitch, they don’t secure any funding.
If you have future plans of approaching an angel investor or venture capitalist for money, make sure you follow these five tried-and-true tips:
1. Show Them the Value
Congratulations! You have a product that serves a well defined need and when you go to the meeting, you talk about how you came up with it and how it’s helping people on a small scale and you hope to make it bigger.
That’s great news but your pitch has to be geared to the value it adds to the investor. How will they make money with your idea and what’s their incentive to take the risk? How big of a market could you serve and how easy is it to scale your idea? If they don’t find the value in your idea, you won’t get the money.
2. Be Committed
When it comes to securing seed money, part-time entrepreneurs don’t exist. Having a full time job makes your business a hobby and investors don’t give money to hobbyists. Do not’t ask for a meeting until you have made a full time commitment to your business. Investors know how much time and effort it takes to build a business and part time people won’t get there.
3. Have Authority
Did you invent a smartphone App that drives a car automatically based on GPS data? That’s a great idea but has your product been tested by automobile experts? Do you have engineers specializing in automotive technology on your design team? Did you get a major car manufacturer to endorse the idea? Your product may not be as big as that but every new product should be independently tested and patented and your design team should have experts in the field on board.
4. Be Invested
If you haven’t invested a lot of your money in to the business, don’t expect others to do it for you. The person that should financially believe in your product is you and before you show up to the meeting, have CAD designs and a prototype if it’s a product, or money invested in to acquiring customers if it’s a service. Expect them to ask you how much of your own money is already in the business.
5. Have a Realistic Valuation
Valuation for a new business is based on sales and although an investor may find it reasonable to add in some future growth, don’t expect to receive money based on your hope of what the business could be. If you had $20,000 in sales last year, valuing your company at $500,000 is unrealistic resulting in a thanks but no thanks answer.
You’ve followed your dream of self employment and owning your own business and that is admirable. But that said, don’t be quick to approach private investors until your business is established.
It is when you ask angels for money to help take your already successful business to the next level that you can expect your prayers to be answered.