At a certain stage in a company’s lifecycle, it reaches a precipice wherein internal growth is capped without the aid of outside funding. When companies find themselves at this crossroad, they must then identify and convince investors to fuel further growth.
But, with so much potentially at stake, how can a business go about attracting investors the right way? Today, we will discuss five effective strategies you can leverage to bring fantastic partners into your corner.
Strategy #1 — Investors Want a Roadmap
Companies and individuals invest to make money—lots of it. For companies to take on such risk, they need to be convinced that the venture has the potential to at least 10x their initial investment. Otherwise, what is the point?
The more business results you have, the easier it is to convince investors to cast their lot. Ideally, you should have all of your financial statements in order and the investment deck fully prepared.
While big ideas can be effective, the company’s numbers are often the biggest determinant of investor interest. They want to know that their investment will not only be repaid in full but multiplied. They need to see that your business model will function at scale and what those potential numbers could be.
To convince them to risk their capital, you must prove that the model works, and then provide a clear argument as to how you will utilize their money to grow the business. Topics to cover during a pitch meeting include:
- Your historical company numbers
- P&L
- Balance sheet
- Cash flow
- The total money required
- How that money will be utilized
- Competitor and market analysis
- Your unique value proposition
Strategy #2 — Target the Right Investors
A partner is much more valuable than a blank check.
The ideal investor will not only provide capital, but also add tangible value to the company as it continues to grow. You want someone who can strengthen the product, leverage their network of professional relationships, and partner with you throughout the business’ lifecycle.
And remember, not all investors will be the same.
Some provide early-stage, smaller capital injections, while others provide larger funding for later-stage growth (a Series A, for instance). The type of investor you target will largely depend on where your company is in its maturity and how much equity and control you are willing to give up in exchange.
With that being said, common options include:
- Banks
- Venture capitalists
- Private equity firms
- Friends and family
- Angel investors
- P2P lenders
Strategy #3 — Leverage Networks and Referrals
Instead of targeting the hard sell, a common strategy for smaller companies is for its entrepreneurs to network and soft-sell their start-up in a more organic way. According to Diana Goodwin, founder of AquaMobile Swim School:
“If you’ve been building a great business, getting out and networking within the local startup and investing community can be a great way to meet investors. Most of my meetings with investors developed by being out at an event and mentioning my business.”
Networking is one of the most natural methods you can utilize to inform other professionals and investors about your business and the potential opportunities it may offer. If your industry holds major events or conferences, this is a unique chance to meet other players within the space, learn more about the industry, and introduce your idea to key investors.
A soft-sell pitch that is well executed could land you in a major investor meeting. So, be open about discussing your plans and goals. And do not worry about coming off too strong. Just be observant and thoughtful. If the parties you are chatting with are interested, they will keep the discussion alive.
Strategy #4 — Offer Stocks with Dividends
One investing option that might entice a reluctant partner is to provide a stock offering that isn’t limited to just company equity, which only provides value if the company eventually sells. An alternative is to provide investors with a stock that pays dividends, so investors are enticed by immediate cash flow returns.
Offering immediate returns instead of a long-term ROI could make investing in you a much more attractive option. But for this to work, you need to have a clearly structured compensation strategy and timeline.
Strategy #5 — Speak to a Larger Purpose
Make no mistake, investors want ROI. It is the sole reason they make high-risk investments.
With that being said, the opportunity to make more money is only a facet of their entire purpose. For many individuals at this stage, they want a product or service that they also believe in—and the value it provides the world.
So, in addition to demonstrating the economic viability of the business, it is also essential to emphasize your company’s:
- Vision
- Mission statement
- Potential positive impact on the world
As Inc.com notes: “Blake Mycoskie of Toms Shoes attributes his ability to raise a seed round and build a $400-million company to his commitment to provide a free pair of shoes to the underprivileged for every pair sold. He didn’t have any big technical shoe innovations.”
Toms was one of the first companies to embrace a one-for-one, charitable business model. This helped the company build a buzz via word of mouth and social media campaigns. It also gave investors a sense of purpose and satisfaction that they would be able to make money and fund a noble cause.
CFO Hub—Helping You Attract Investors
Finding investors is half the battle. After you’ve identified them and carved a route in, the next step is to convince them that you are, in fact, worth the risk. For that, remember to:
- Provide a clear financing roadmap
- Target the right investors
- Leverage your network
- Offer investment packages that offer immediate returns
- Highlight the larger purpose of the business
To that end, do you need help finding and attracting investors? How about establishing your investing documents and roadmaps?
Here at CFO Hub, we pair growing businesses like yours with CFOs and Controllers that complement the needs of the business. With the right person(s), you can craft an excellent pitch, create a vetted criteria of partners, and eventually attract the perfect investor.
Interested in learning more? Contact us today for a free consultation.
