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How do you convince investors that your startup idea is worth sinking their hard-earned cash into? It’s a question that has plagued entrepreneurs since the dawn of time – well, figuratively speaking. But for people wanting to start their own businesses, it’s a crucial question nonetheless.
The key to getting investors to part with their money is to master the art of pitching claims Scott Issen, the CEO of Future Founders Foundation. He’s worked with entrepreneurs on dozens of pitches, and he’s got some advice for you. Here’s what he has to say.
Imagine you’re an investor for a moment, and a stranger is asking you for money. No matter how good their product pitch might be, they’re going to be at a disadvantage. Why? Because investors need more than a slick product presentation to part with their money; they need trust. This is why Issen recommends that entrepreneurs get to know their investors well before they ask them for any money. They need to prove that they are honest, genuine, authentic and responsible way before any money changes hands.
Establishing these budding relationships, Issen claims, provides business owners with more power to negotiate. It also, in his experience, leads investors to cough up more money, especially if they can imagine working with you in the future.
When investing in a startup, the thing that most investors are most interested in is the product. Is it any good? After all, if it’s not, then it’s not worth their time and money, no matter how good their personal relationship with you might be.
A good way to show off a product is to use RIM moulding to create a prototype. Having something that investors can see, touch and use helps to make the product real for them. Plus, a proof of concept shows that what you want to produce is not only feasible but that you have the skills to make it too.
Investors don’t just take cues from your product, they also take cues from how personally invested you are in your company. The more of your time and energy you’ve poured into something, the more likely they are to trust that you’re serious about your business plans. One of the strongest signals you can send is giving up your day job to focus entirely on the firm. Investors want to see that you have something to lose if the business should fail.
If you’ve ever watched the TV series, Dragons’ Den, you’ll have noticed something: practically none of the entrepreneurs on the show have a handle on the financial metrics underlying their companies. This infuriates the investor “dragons” and often means that they go home empty-handed. Remember, investors are in the business of making money, so tell them how much money you think they’ll make as well as why now is the best time for them to invest.