Starting your own business? You’re gonna need some cash.
There are plenty of common and not-so-common ways to raise money for your startup. Your chosen fundraising mechanisms depend in large part on where you’re starting, what you intend to do with the money you raise and how you see your growth trajectory unfolding.
“Most financial professionals caution startup founders to avoid excessive leverage at an early stage,” says Fergus Cleaver, a New Zealand-based accountant and shareholder in Cleaver Partners. “Taking on too much debt, or giving away too much equity at an early stage, can lengthen time to profitability, hamper long-term growth, or even result in a loss of company control earlier than planned.”
In other words, says Cleaver, bootstrapping is preferable to loans and equity investments. But it’s not always practical, especially for founders launching capital-intensive businesses in capital-poor networks. If you need to raise outside funds for your new company, you’re very likely going to have to pitch your idea to investors who’ve never heard of you—and who hear multiple pitches (sometimes dozens) per day.
Pitching to investors requires you to do two things simultaneously: identify investors with whom you can work over the long term and tailor your pitch to their needs and preferences. These are not easy tasks, but they must be done.
How to Identify the “Right” Investors: What to Look For
“Attracting investors who share your company’s values and believe wholeheartedly in your vision as you’ve outlined it is nearly as important as attracting growth capital in the first place,” says Cleaver. “Investors who don’t see eye to eye with you, or who fundamentally disagree with your vision, can impede your growth and actively stymie your pursuit of mission-critical goals.
“Of course, most unsuitable investors won’t tell you that you’re unsuitable,” he adds. “You must learn to recognize the signs of suitability (or lack thereof) yourself.”
What does a suitable investor look like? That depends on the nature of your startup and your long-term vision for its growth. To start, you can keep some or all of these considerations in mind:
- Focus Areas: Which industries and sub-industries does the investor favor? Ideally, you want to pitch to investors that deal mostly or exclusively with companies in your niche, as such investors will be more likely to provide useful advice and guidance throughout the investment term.
- Time Horizon: How long does the investor want to remain involved? Some VCs look for quick exits—as short as 12–24 months. By contrast, many private equity firms are happy to keep companies on the books for five, seven, even ten years or more. If you’re not looking to sell quickly, avoid in-and-out investors.
- Investment Goals: What sort of return does the investor seek? Do your growth plans line up with those expectations? It’s a waste of everyone’s time to go after investors whose goals don’t align with your own.
- Relationship With Portfolio: Does the investor take an active role in mentoring and even managing portfolio companies? If you’re looking for a passive investor who’ll stay above the day-to-day fray, avoid investors who pride themselves on their activism. On the other hand, if you’re an inexperienced founder, it’ll likely be helpful to have seasoned pros in your corner.
Fergus Cleaver on Tailoring Your Investor Pitch
Now that you have an idea of what your ideal investor should look like, you need to hone your pitch accordingly. Every investor is different, and it’s tough to craft a pitch nimble enough to speak to each one on an individual basis, but the best pitches tend to share these key characteristics:
1. A Personal Touch
Passion sells. So do compelling personal stories. Infuse your pitch with both, tying the company you’re trying to build to personal experiences you’ve had or background stories that inform your life. This can be as simple as relating your company’s origin story with a personal touch—e.g., what personal experience crystallized the idea of founding your company?
2. Exhaustive Detail
Investors love detail: data, projections, personas, anything that provides an ostensibly objective picture of your company’s prospects and probability of success. Go into more detail than you think you need at first. If the feedback from your first few pitches suggests you’ve gone overboard, you can always subtract detail from your deck.
3. A Point (Fast)
Investors are busy. Really busy. You’re never going to be the only pitch on a VC’s daily docket, so be respectful of everyone’s time and get to your point—the elevator pitch, brass tacks or whatever you want to call it—fast.
4. Lots and Lots of Visuals
Your pitch needs to be visually appealing, even if its meat includes lots of dreary numbers and dry prose. If you can incorporate stage props, like prototypes or downloadable apps, so much the better.
5. Practice, Practice, Practice
Just don’t let prospective investors see you practice. You want to get that done before you walk into the arena. You don’t have to deliver a lofty monologue worthy of a presidential address, but you can’t “um,” “ah” or awkwardly pause your way through a quality pitch. For better or worse, unpolished pitches make founders seem unsure, even if they have full confidence in their ideas.
6. Clear Path to Profitability
Your pitch should leave no ambiguity as to how your company plans to make money, and when. At the end of the day, every investor wants a return on investment. If you can’t make the case that your company is going to provide that, why bother with the pitch at all?
7. Unique Elements
In a full-bore fundraising round, you’re liable to deliver your pitch dozens or even hundreds of times. That can get boring, no matter how passionate you are about the project. Put in the extra time to make each pitch a bit different than the last, whether by incorporating personal details about the people to whom you’re pitching (do your homework!) or tying the discussion to subjects of local or current interest.
How are you tailoring your pitch to attract the right kind of investors?