This article written by Harsh Niwas, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) .Harsh is currently working as Deputy Manager – Railway Project – Adani Enterprise Limited.
Being an entrepreneur and running a business requires more than a creative idea, hard work and a zeal to succeed. While being an entrepreneur has the perks of being your own boss and making your vision a reality, at the very same time, you are your own provider, financier and trouble shooter. Also, coupled with the booming competition and infinite avenues of potential growth that a brilliant entrepreneurial idea brings, more often than not, the only thing stopping an early stage entrepreneur is finances to make the vision a reality. However, the business industry today is conducive for such entrepreneurs as they believe that every brilliant mind is not blessed with a silver spoon and in the face of that reality and also with the idea of brokering a situation that is befitting of the entrepreneur as he/she gets the essential push to skyrocket his idea and people in the business industry get a piece out of someone else’s vision and hardwork in return for being there with the requisite help that was behind this success. This arrangement is essentially what is referred to as investment in more technical terms. For an entrepreneur today, investment options range from asking your loved ones for investment in your idea, to private investors, angel investors, venture capital investors and much more. However, the choice of which investment option to explore and which entity or individual to select is probably the most important decision that needs to be achieved. While coming to this decision and being on this stage, the investment seeking entrepreneur needs to understand his own demands as well as the requirements of the investor to be convinced enough to place his bets with you, a few key points to keep in mind while choosing the prospective investor:
Connect to your story and journey
Investment, especially high risk ones like a new business, first time entrepreneur or a niche startup, requires the investor to go not for reliance on previous data or proven experience but more of belief in the entrepreneur or his idea. For this the investment pitch must focus and put substantial emphasis on the journey of the entrepreneur, the birth of the idea and the passion that drives that entrepreneurial steps and the growth of your organisation. This is the part where you analyse your target consumer base and at the same time whether the investor believes in the potential of that consumer base.
Your story should address the problem you’re trying to solve in the market and at the same time explain how your company stands to benefit from it. You’ll have to frame it in a way that it strikes a chord with the investor. Getting a favourable investment becomes a cakewalk when you can get the investor on the same page as you with the idea behind your baby project.
Investors are smart, value their money, are willing to invest time and efforts and they are looking for a strong idea, a hardworking team and the zeal to succeed. These points come along with their belief in the potential of a particular venture, if that does work out in the mind and gut of the investor, them the investor is in.
This convincing part can only be fruitful if it is pitched to an investor who is open to invest in such an idea,if the investor is traditional in the way that will support only those ideas that are backed by a graduate from an Ivy League or just male dominated business, on someone who comes from a serial entrepreneurial family, there will be no point approaching him. However, new age investors possibly ones that have grown from businesses close in features to yours are the kind of investors that you should approach.
Investors would ideally be pushed to invest in your idea if you can hint on the possibility of more future opportunities to come, other than those mentioned in your pitch. This serves as an eye-opener that gets people to think of newer and more ambitious avenues.
This decision about the investor to approach is one of the key and most important decisions that any entrepreneur looking for investment makes as this holds a lot of components. Your confidence wavers if you find an investor who rather than believing in your potential belittles your idea, or puts you down, such an investor would not only be someone who would undermine your confidence which is critical to an entrepreneur but at the same time act as a bad PR machinery in the investor circles due to an experience he/she has with the entrepreneur based on his own prejudices, something that is not desirable for a fledgling business. If chosen properly, an investor not only becomes your financier but at the same time your mentor and a resource that brings positivity and experience to your hemisphere of operations.
Suits your funding needs
An important part of your investor pitch is that the entrepreneur seeking the investment is clear of his funding needs and how that inflow of finance will alter his operations. This analysis of funding needs also makes it possible for the entrepreneur to approach an investor who is capable and willing to fund that amount of finance into your finance. Also, the finance comes in various forms, bonds, stakes, equity with investors being such that their involvement is limited to providing the finance or to a point where the investor becomes a mentor for the business bringing to it their experience and acting as a God Father in more avenues than one. Now before selecting which investor to approach it becomes mandatory to align the needs of the entrepreneur to that of the investor and make a decision regarding who to approach based on these calculated risks. To arrive at this decision it is important for the investor to have a detailed projection of your company’s revenues for at least three to five years in both the two cases wherein one is the normal scenario and the other is the worst-case scenario. Investors are looking for realistic growth figures and will appreciate your prudent calculations stepping into future and will also acknowledge your effort in regard to the fact that the entrepreneur has accorded this much effort, hardwork and consideration to respect the investor in a way that will result in a situation that is cohesive and beneficial to both the investor and the entrepreneur. Further, any pitch before the investors is appreciated in the way that the investors are interested to know how you can make revenue and a break down your pricing and explanations in regard to the fact that you have a ready market in anticipation of your product/service.
A look at the investor’s investment portfolio
An important part of your investor pitch is that the entrepreneur seeking the investment is aware of the investing style of any entrepreneur and is in understanding and appreciation of the way the potential investor invests. An investment seeking plan can only be successful if it is pitched to an investor who is open to invest in such an idea as there are a lot of things that are contingent on this requirement. If the investor is traditional in the way that will support only those ideas that are backed by a graduate from an Ivy League or just male dominated business, on someone who comes from a serial entrepreneurial family, there will be no point approaching him. However, new age personal opinions not needed in an article investors possibly ones that have grown from businesses close in features to yours are the kind of investors that you should approach. Browsing through their existing investments, looking at the level of involvement in any investment with also a consideration to the competitor in the market. If the investor that you have approached is someone that has the potential to invest in your competitor as well then in that situation the communication on the fact that you know your competition and explain how you have an edge over them can really turn any investment pitch in your favour.
We need to provide avenues for consideration .Different situations may have different solutions.
Your Exit Strategy
Investors are looking forward to hearing the plans for your company 5 or 10 years down the line. Whether you’re planning to get acquired, go public or do something else, be sure to enlighten investors as to why that is the right choice. Interacting and approaching investors that would be on board with that idea as well as investors that plan to exit your business once they have realised a certain return is also an important consideration. Also, when you are providing equity then in the situation that the returns on finances that they have been expecting from you have not been realised in that certain way, then what would be the procedure taken by the investor and how that translates with your financial strategy and your stake in your firm will have to be the prime consideration. Investing in your organisation should not give them the right to if the finances are not compensated in the manner they want to take over the organisation or any such drastic results.
Ethical Integrity of Investor
A very important consideration while choosing an investor to pitch and allow into your organisation in a rather determining role is whether the investor will not abuse that position of power and dominance to the detriment of the organisation. This consideration is one that cannot be determined with new age investors but rather a decision to be taken by the smart response and the mindfulness of the entrepreneur seeking investment. There are now separate concepts that have evolved that consider not only the operational integrity of the investor but the environmental and social integrity as well. For example, Socially responsible investing (SRI), or social investment, also known as sustainable, socially conscious, “green” or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about a positive change. If as an entrepreneur you have a product or service that brings forth a position that needs social and environmental consciousness at the forefront to consider a better brand equity then this is the something that the investment seeking entrepreneur needs to keep in mind as well.
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