6 min read
Opinions expressed by Entrepreneur contributors are their own.
Some would say that funding is the make-or-break moment for a business. That moment is glorified, even romanticized, when an eager young entrepreneur walks into a room full of investors with a great plan and high hopes. But, having been on both sides of the proverbial desk, I would argue that by that time, the most important moment has passed. By the time you enter that room, the biggest investment has already been made, and its payoff is dependent upon the very person who’s made it.
Related: 6 Successful Dealmakers Share Their Top Tips on Raising Capital
That’s not such an easy concept to grasp when you’ve already put in countless hours, a once-unimaginable amount of effort and more than likely some of your own money. Faced with the same risks, potential backers will approach your business with a skepticism that you’ve long since abandoned. But, if you find yourself begging investors for a chance at glory, you may be looking at things from the wrong perspective. And though yours is the most important, you still need to know the reasons behind theirs.
1. An unproven plan
No matter what makes up your business plan, investors want to see proven results. At the least, they’ll want a picture of your real-world earnings before they commit. That means quarterly reports that show both short-term growth and long-term promise. The investment history books are rife with stories of highly promising concepts that ended up losing a fortune. (The 2000s dot-com boom comes to mind.)
Having a brilliant idea is fantastic, but great ideas aren’t worth any more than the paper they’re printed on. Great business minds can agree on this point: It’s about execution, not ideas. Getting the cash means offering some kind of assurance, even in the early stages, that the investment is a smart one. A potential investor won’t back an unconvincing idea any more than you would.
Related: 6 Tips for Perfecting Your Elevator Pitch
2. A saturated market
You might have a foolproof idea and an incredible product, but if investors see you as a small fish in a big pond, they’re likely to steer clear. Ingenuity can only get you so far in their eyes if there’s a perception that your young company will have too many competitors to keep you from standing out when you enter the marketplace. So, take a serious look at the world you’re about to enter. Does your company fill a need, or are you walking the already-beaten path? Be brutally honest with yourself here, because if you’re not, the lack of interest from investors is going to take care of that for you.
3. Growth issues
The No. 1 concern of any investor is the capacity for growth. If you don’t show a clear path to expansion and increasing profitability over time, a rational investment would require investors to spend even more resources — in the form of their own time — guiding their money in the right direction. This ties in with the last reason: There needs to be potential for growth, whether it’s through a receptive market or deep experience on the part of the entrepreneur.
As your business grows, your team needs to grow along with it. Willingness to change paths to reach a changing market is an oft-overlooked piece of the growth puzzle, and some tech giants have had to make substantial changes as they’ve expanded. PayPal, the online payment giant, started life as a PDA-based encryption service. (For any readers too young to know what a PDA is, it’s an iPhone with no apps.) An expansion-focused mindset led the team to scrap their original plan, and after making some key acquisitions, the company’s founders are now an assemblage of billionaires.
Related: Shark Tank’s Barbara Corcoran Shares Her Secret to Pitching Success
4. Your team
Most (but not all) startups comprise a relatively young and inexperienced team. This might be okay if you’re really on top of your game. But, for many investors, an inexperienced organization is a red flag. The team you put together is one of your startup’s most important assets, and veteran investors know this well. The makeup of your group matters, so choose people whose talents complement one another, so that the whole is greater than the sum of its parts.
There’s nothing like going into a meeting with a group of people in whom I’m considering investing and seeing a team that can finish each other’s sentences. When I see a cohesive unit, it inspires confidence, and shows me that the company will know how to take care of the little things.
Related: This Entrepreneur Explains How He Survived 150 Rejections From Investors
Your business is your baby, and as its parent, every decision, every deal and every email has your name in the signature. Ask yourself, does that make you even slightly nervous, or is it all confidence all the time? The difference shows when you’re meeting with potential investors. When I’m assessing a business’s merits, the first place I look is at the top. It’s true that leadership comes in many forms, but there are things that a natural leader does that would never even occur to someone in the nervous category. I want to see that you’re real and authentic. That you live and breathe your company like I do mine. Restraint is great in the boardroom, but if I hear a sales pitch without any passion, that’s an instant turnoff, and might even wind up being the deciding factor. Investors need to feel it in their gut before they open their wallet.
Not much comes easy when you’re growing a business — and if it does, you could probably be doing more. Even a flawlessly designed car will eventually meet an imperfect road, and it is the mark of a true entrepreneur to take those bumps in the pavement as inspiration rather than defeat. And if you’re at the point where you’ve got an investor’s ear, you’ve already done a lot right. There’s no more certainty at that investor’s desk than there is at your own, but when you walk out of that room — whether it’s with check in hand or not — you are the one who controls the biggest investment to date: because it’s your own.
Related Video: Why Enthusiasm Only Gets You So Far With Investors