About 5 years ago I ventured into the world of business funding. It fascinated me how many new businesses there were, often with great ideas, yet they were not able to get funded. This made me wonder why.
So many companies who approached me to get them introductions to investors had spent a long time putting together their business plans, investor decks and Information Memorandums.
When they approached me they would swamp my inbox with information in the belief that the more they sent, the more likely it was that they would get funded.
This is a myth
Some would demand that I signed a Non-Disclosure Agreement (NDA) before they would tell me about their idea. But, how would I ever get them in front of an investor if I was not allowed to disclose anything about their business? I never took on a client who went down this route after my first few weeks. I was wasting a lot of time signing NDA’s only to find a business with no substance behind it! As Albert Einstein once said: “If you can’t explain it simply, you don’t understand it well enough.”
After a lengthy process of connecting individually with investors and teams who ran angel investor networks, I asked them, “What makes a business more likely to get funded?” The feedback I received was very interesting, to say the least.
Some of the angel networks I work with receive up to 200 funding proposals a day. They simply do not have the time to wade through pages of irrelevance before they find out what the business actually does, why they should invest, and what they are actually looking for. For this reason, alone most funding proposals will not even get a response and if they do, it will be a negative one.
So what can you do to improve your chances of getting an investor interested?
If an investor is interested in your business they will eventually want all of the details. However, in order to get to this point, you will first need a very slick, concise 1-2 page executive summary. Ideally, it will be 1 page. At a push, you may get away with 2 pages.
Some companies who I asked for an executive summary from would simply say: it’s in the business plan.” This was always a red light warning for me. If you are looking to raise a 6-7 figure sum of money and couldn’t be bothered to copy and paste your summary to a one page document, in my experience it usually meant that I was unable to help them.
What does an investor look for in this summary?
You will need to include a one-sentence overview of what the business does, and illustrate the problem that you solve/demand for your platform, product or service.
The management experience of your team is critical, along with your investment so far in your business. Investors are far less likely to take a risk in your business if you have not invested your own ‘hurt’ money.
How will you spend the money? Investors will not like it if you are an early stage business factoring in big wages for you or your team. This is usually a kiss of death unless you are already generating a good income. Have you proved the concept? What is your customer acquisition cost? Do you have your own Intellectual Property (IP), and is it protected? How many customers are using your platform/service/product? Who are your partners/advocates who will promote your service? Is there interest within the industry you are looking to penetrate? Is your opportunity eligible for Seed Enterprise Investment Scheme (SEIS) tax relief?
These are the main things your summary needs to cover
In a world where content is flooding into our inboxes and desktops, those entrepreneurs who can be succinct in their opening approach have far more likelihood of their business at least getting considered. The same is applicable for a first meeting with an investor.
I have sat on investment panels and listened to people talk about things which are simply not interesting or relevant to investors because they believe that the more they talk, the better chance they have of getting investment.
For this reason, I started running pitch training workshops. I did this because it is hard enough getting a business looked at by an investor, so when I was able to arrange meetings with investors it was important to prepare the entrepreneurs for these meetings. I have seen people talk their way into funding and out of it in the same meeting because they did not know when to stop talking.
The most important document in any business looking to get funded is a one page executive summary. Without this the odds are that you will never get a meeting with an investor unless you already know them.
At the angel investment stage it is more about selling yourself than your business. People buy people and in the back of most investor’s minds is “Do I want to spend more time helping this person?” If they don’t like you, they will probably not be interested in investing in your business, regardless how good it looks on paper.
The average angel investor is not doing this mainly to make money. They have made their money and have some spare to invest. Making a difference, having a reason to get out of bed, and having fun are far bigger factors for most of them.
Once your funding requirements are ready for Venture Capital funding it is more about the business and the numbers than the personality of the entrepreneur pitching it, but if you can’t attract early-stage investment this will probably not matter.