A group of entrepreneurs gathered for an exclusive breakfast with entrepreneur, venture capitalist and according to Business Insider, one of the top 100 most influential people in Silicon Valley, Owen Davis. It was a rainy, unusually warm day and of the 20 or so people attending the event, 17 were female. Organized by SheWorx, a collective of female entrepreneurs and change-makers who host weekly breakfast events covering a variety of topics to help aspiring entrepreneurs and ambitious leaders learn more about anything and everything that pertains to the world of business, leadership and entrepreneurship, this session focused on “Learning how to develop an effective fundraising strategy.”
Unfortunately, the market has been cooling down lately which means investment funds for startups is not as easy to come by as it had been recently. Investors are more cautious about who and what they invest in and how much. How does an entrepreneur today then, looking to get their startup off the ground ensure that they receive the necessary for their business? By knowing how to ensure funding from investors and not many people know more about what investors are looking for in potential investments, particularly in the tech industry, than Owen Davis.
Here are some strong key points he made at the meeting that could help you gain a better understanding of what investors are looking for in a startup:
- You’ve experimented and done your homework – So maybe you have a great idea for a business -Great. Awesome. Before you go out looking for investors to fund your idea you need to actually test your idea out to see if it works or not. You need to experiment and gather data to prove to investors that not only do you have a great idea but that it actually works and you know how and why.
- Have quantifiable proof – How do you convince investors that your idea works and can become a viable business? Have the proof. Once you’ve performed the experiments, ran test runs of your idea/product and have gathered enough data to back your claim that you can generate a profit or have found a real need in the market, then and only then should you even think about approaching investors.
- Have a product – You can’t just have a great idea and expect people to invest in it. You need to have a physical, tangible product that investors can see and touch not only to build their confidence in your product but to be able to work out any issues that may develop in the building of your product. In this case, seeing is
- Know the DNA of your business – This one is kind of like the old adage “do what you know”. If you don’t know the ins and outs of your business, if you don’t know the “DNA” of your business or the product you’re providing, then maybe you should think about doing something else. For example: You want to open up a grilled cheese shop but you don’t know how to make a grilled cheese sandwich or the ins and outs of the food-service industry –please, stop while you’re ahead and consider doing something else. If you’re developing an app, you should know how to do the front and back end development. If you want to start a shoe line, you should learn how to design and build shoes. Seems logical, right?
- You should like your investors and vice versa – If you do have potential investors interested in funding your business, make sure that you like them as people and vice versa. At the end of the day, all investors are people and if you’re going to accept an investment from them then that means you’re going to be working with this person or people for a long time. You need to be able to have a good rapport and see eye-to-eye on the essential mission of your business.
- Approach investors who know your market – If you have a great idea for the next big mobile app and are looking for an investor, look for investors that invest in mobile apps. You don’t want to approach investors who don’t know anything about your market, and chances are they won’t want to invest in you anyway because they don’t know that market. Investors who invest in your market aren’t only more likely to invest in your idea, they can also serve as mentors that can help guide your business in the right direction.
- Be accepting of feedback – When you approach an investor with an idea and especially if you heed the advice in point 6, your investors know the market. You may know your product or service better than they do but they usually know the market way better than you do. If when you present an investor your idea and they give you feedback on what your product needs to improve upon, don’t quickly get defensive and start highlighting all the ways your product is better than all the others on the market. Instead, listen to and accept their feedback. Getting defensive about your product and being unaccepting of feedback is a major red flag for investors and they most likely will not invest in your business not because you don’t have a great idea but because you’re unwilling to accept feedback which is a sign of future business failure.
There is still money to be had – Just because the market has been cooling and investor money isn’t as easy to come by as before doesn’t mean there still aren’t opportunities to get funded. There are many startups that have been funded recently and many angel investors still willing to invest in startups. You don’t always have to go to the big VC firms but if you do, make sure you have reputable information to present. That will make you more likely to get their attention and their money.